Should You Self-Contribute another RM60,000 into your EPF Account?
A key question on many salaried Malaysian's minds is whether the EPF dividends this year will be good enough to justify self-contributing another RM60k into our EPF accounts in 2023 to gain the additional EPF dividends. This is considering that OPR will likely go up further, allowing even bank FDs to hit 5% in 2023, while the EPF dividend rate for 2022 is being pessimistically estimated at 5.5% by some parties.
The flexibility has always existed for all EPF members aged 55 and above, as well as those with over RM1 million in their EPF. But there's also another option - you can place your funds in your parent's account. If your parent is aged 55 and above, note that you cannot do it using the Account 1 Top-Up Savings form, which requires the recipient to be under age 55. Rather, you can just directly bank in to their EPF account. Obviously if you have siblings this might get tricky, and your parents might also forget over time, so there is an element of trust. If you're the single child, and/or your parent's EPF account is pretty much empty and un-utilised because they have withdrawn most of it for their retirement, then it's pretty much a free shell account for you to leverage.
How to Maximize dividends on your Self-Contribution?
One other tip on the timing of contributions is to do it at the end of the month. If you want your self-contribution to earn the full 365 (or 366) days of dividend, then you need to self-contribute end-December the year before. If your self-contribution was already maxed last year, then the best time to self-contribute is RM60k in end-January, keeping in mind this contribution in January will only earn 335 (or 336) days of dividend.
This is because of the way EPF treats your monthly contributions - regardless of when your contribution was actually deposited in the month, you will only earn 1 day of dividend in that month, i.e. depositing on 1st Jan vs. 31st Jan gives you the same dividend payout.
However, the same doesn't apply to withdrawals, as the withdrawn amount stops earning dividends starting on the day of withdrawal.
There are a few blogs and sites that shows you how EPF calculates your annual dividend, but I will keep the concept really simple here for you. The annual dividend you earn is basically:
Average Daily Balance (e.g. RM100,000) x Dividend Rate (e.g. 6%) = Dividend (e.g. RM6,000)
You start the year with the balance brought forward from last year, and unless there's a withdrawal in the month, your ADB remains the same until the last day of the month, where your total month's contribution is added. If there's a withdrawal, your daily balance is reduced accordingly on that day itself.
EPF is calculated based on daily rest against the daily balance (but isn't compounded as the dividend is only paid out once a year in March), so you can calculate your daily dividend against the daily balance for 365 (or 366) days, or annual dividend against the average daily balance for the entire year.
It's really that simple, and you don't need all those complex formulas being thrown around. 😀
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