“You will not be financially secure if you don’t care about financial planning”. No matter what life stage you are in at present, you must have adequate and proper financial planning in order to maintain a better livelihood in the long term. There are currently two tax-deductible products available in the market, namely Tax Deductible MPF Voluntary Contributions (TVC) and Qualified Deferred Annuity Plans(QDAP) which are the perfect tools for you to have better financial planning for tax-deductions and retirement.
What are their special features? Let us take a closer look below.
What is Tax Deductible Voluntary Contributions (TVC)?
Starting in April 2019, there’s a new way for people to save money for retirement called Tax Deductible Voluntary Contributions (TVC).
If you’re eligible, you can put money into your TVC account and get a tax break. For the 2019-20 tax year and each year after that, the most you can deduct from your taxes is HK$60,000. This limit applies to both TVC and qualifying annuity premiums.
In simple words, TVC is an easy, convenient, and flexible account to save for retirement. If you’re eligible, you can simply open a TVC account in any MPF scheme and start to put money in to grow your retirement fund.
Who is eligible for TVC?
You’re eligible for the TVC scheme if you under either of the following situations:
- An employee who is in a Registered Scheme
- A self-employed person who is in a Registered Scheme
- A personal account holder in a Registered Scheme
- A member of an MPF-exempted occupational retirement scheme (ORSO)
TVC Feature: Free choice of fund types
In addition to a number of banks, various MPF trustees such as Manulife, AIA, Sun Life and BOCI-Prudential Trustee also provide TVC products. The types of funds offered and rates of return are different amongst various trustees.
For example, AIA currently offers 25 types of MPF funds for customers opening TVC accounts, Manulife offers at least 29 types, whilst at least 10 types are offered by China Life Insurance. Customers can make flexible arrangements when it comes to allocating money to various types of funds or regional market funds.
TVC Feature: Extra tax-deductible amount of HK$60,000
The Government stipulates a maximum annual tax-deductible amount of HK$60,000 for an individual making contributions to their own TVC accounts, where contributions that are made to the TVC accounts are eligible for tax deduction. For an individual with a maximum tax rate of 17%, the maximum actual tax savings will be HK$10,200. Furthermore, for a married couple with both of them having to pay taxes, and where one of them has claimed TVC tax deductions which are less than the maximum amount, his/her spouse can also claim the remaining balance for his/her own tax deductions.
TVC Feature: Flexible contribution arrangements
In comparison with the monthly MPF contributions stipulated by the government, TVCs are more flexible. Some MPF trustees provide TVC account holders the flexibility in making monthly and/or lump sum contributions, implying more freedom in capital arrangements. For instance, Manulife’s “Manulife Global Select (MPF) Scheme” allows customers to freely decide contribution amounts and the number of times to make contributions. Customers can make monthly contributions with amounts as low as HK$300 or a lump sum contribution of HK$3,000. In this way, customers can manage funds more flexibly and arrange for the most suitable MPF contribution style in accordance with their personal financial status.
When can you withdraw TVC benefits?
You can withdraw your TVC benefits in the following situations:
- When you turn 65 years old or you retire early (when you turn 60 years old and stop working or being self-employed without plans to work or be self-employed again)
- In case of death
- When you have a small balance
- When you permanently leave Hong Kong
- In case of total incapacity
- When you have a terminal illness.
What is Qualified Deferred Annuity Policy (QDAP)?
Qualified Deferred Annuity Policy (QDAP) helps people save money for retirement in small amounts when they are young. When they retire, they can use the savings to pay for their daily expenses. If you qualify, you can also get a tax deduction for the money you put in over time.
It can also be regarded as a type of long-term insurance product. Participants make regular contributions during the annuity period and receive regular and stable returns after reaching the eligible age, there by creating passive income for themselves.
QDAP Feature: Start as early as 18 years old to enjoy stable returns
QDAPs are flexible and without many restraints in terms of formality and the method of purchase. The minimum eligible age to purchase is 18 and the earliest annuity income commencement age is 50, with a minimum premium payment period of 5 years. Therefore, QDAPs are not only suitable for the seniors, but also for young people to add value to capital and as a tool for starting retirement planning as early as possible.
QDAP Feature: “Sharing tax deductions” within a married couple
The contributions made for TVCs and premiums paid for QDAPs are aggregated for calculating tax deductions. If a married couple has both bought QDAPs, one of them is eligible for claiming the other’s remaining tax-deductible amount for the premiums paid. In other words, they can “share the tax-deductible amounts”. The maximum aggregate tax-deductible amount is HK$60,000 per taxpayer per year, which will be a total of HK $120,000 for a married couple.
TVC or QDAP? Which one should you choose? Why not both?
You might wonder whether purchasing TVC is better than purchasing QDAP, or vice versa. In fact, there are several decades from starting work at the age of 20 to retirement at the age of 65. Financial planning is a lifelong preparation and retirement planning is a lifelong business. Any product that can help accumulate wealth is worthy of careful study.
Both TVC and QDAP have their own advantages. Consumers can make use of them both in order to achieve tax deductions, grow wealth flexibly and enhance retirement protection. Therefore, consumers have good reasons to buy both products if they recognize their financial planning needs and the special offers are attractive.
TVCs are more popular among people who value flexibility and autonomy, whilst QDAPs are more suitable for people who are less interested in investing or those with busy work life who find it hard to focus on investments.
You may seek a trustworthy MPF trustee that provides both TVC and QDAP, such as Manulife, AIA and Sun Life among others, and purchase both products in accordance with your actual needs. Ultimately, you will be able to make stride towards your very bright financial future.
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