Tutoring is a great career opportunity for those who wish to be their own boss and set their own tuition rates and schedule. It is a career that is pursued by thousands in Singapore and millions all over the world. So the question arises; do private tutors need to contribute to the Central Provident Fund (CPF)?
Well, at the moment, there is dissonance among the tutors regarding the CPF contributions. Some tutors think that it is not necessary to contribute to the fund because they are not employed by a single employer. Meanwhile, others choose to contribute to the fund of their own accord even if they do not have a stable income all year round.
If you are new to this profession, you are probably wondering what the best approach is. Do you have to contribute to the CPF, or do you not? Hopefully, this article will answer many of your questions.
Is it mandatory to top up your CPF account?
Typically a person's employer contributes to their CPF account, and the amount depends on the employee's salary. Tutors, of course, are self-employed, and they do not have anybody who they can call an employer.
Since there is nobody else who can contribute to the CPF account on your behalf, you will have to do it yourself. Every Singaporean citizen has three types of CPF accounts.
These are Ordinary account, Special account, and Medisave account. Typically, the ordinary account is used for education, insurance, investment, as well as housing. The special account is the retirement account, whereas the Medisave is preserved for any type of medical expenditure.
It is not compulsory to contribute to the ordinary and special accounts; however, if your earnings exceed $6000 in one year, you are obliged to contribute to your Medisave account. On the other hand, if you’re a freelancer who has made less than $6000 in one year, you can opt out of contributing to this account.
Medisave account contributions.
How much you should contribute to your Medisave account depends on your age and on the amount of money you earned in that year. You can find a detailed breakdown of the process and of all the rules on the CPF’s website. This site also conveniently provides the contribution calculator, which you can use to find out how much you are obliged to pay.
Medisave contribution deadline.
The Inland Revenue Authority of Singapore (IRAS) sends out notices of assessment. Once you have received this notice, you have 30 days to settle your Medisave contribution. If you did not receive your notice of assessment, you would still need to pay every year before May 31.
How to contribute to Medisave?
You can make a contribution to your Medisave account via the "My CPF" E-service online. You will need to verify your SingPass details to make the payment; make sure to choose the “self-employed” from the “paying as a...“ field. If you do not want to use the website to pay your contribution, there are some other options. You can use your GIRO or NETS to pay, and you can also pay at any SingPass branch.
Do I have to pay all of it at once?
You are allowed to pay your contribution in installments if you cannot make the full payment to your Medisave account. There is an online installment calculator on the CPF website, and you can use it to find out how to pay in installments. If you want to check the amount, you can do so by selecting the “contribute to my meditative in installments” on the “my CPF” E-service.
What are the advantages and disadvantages of contributing to your ordinary and special accounts?
As I have already mentioned, it is not compulsory to contribute to the ordinary and special accounts, so teachers can choose not to do so. However, contributing to these accounts has advantages as well as disadvantages, and you should be aware of them before you make the decision.
Pros of making CPF contributions
Firstly, contributing to this account helps you save for retirement. When Singaporean citizens turn 55, they receive a retirement account, and they can transfer money into it from their CPF accounts. This money will be marked as “retirement sum,” and will be given out to the beneficiary every month via cash payouts.
Another advantage is that CPF has better interest rates than a bank. The money doesn’t just lie there in your account. The annual interest rate is 3.5% for ordinary accounts and 5% for special accounts. Moreover, contributing to these CPF can reduce income tax liability.
The government tries to help self-employed workers with their income tax liability by providing them with a special CPF relief scheme. If you want to be eligible, you must contribute on a regular basis to your Medisave account and also make voluntary CPF contributions. If you do that, you have the option of paying your income tax with the money you contributed.
Cons of making CPF contributions
The main disadvantage is that you cannot withdraw money from the accounts until you turn 55. You cannot withdraw everything too, and have to set aside a sum in your Retirement Account, read the full details on the CPF website.
Also, if your goal is to invest your money to maximize your return, there are some other institutions that offer better interest rates. While investing in stocks, for example, carries a certain risk, it can help you double or even triple your initial investment. Investing in real estate also offers better returns than investing in the CPF accounts. But these types of investments require a hands-on approach so if you do not have the time or knowledge to do that investing in the CPF is a better choice for you.
Everybody needs to make sure that they are secured for the future, and private tutors are no exception. If you have regularly contributed to your CPF accounts, you will be able to enjoy that money later when you retire.
Do you think its beneficial to contribute to CPF? Tell us what you think.