MPF Tax-Deductible Voluntary Contribution or Qualified Deferred Annuity Policy?
What are the differences between MPF Tax-Deductible Voluntary Contribution (TVC) and Qualifying Deferred Annuity Policy (QDAP)?
QDAP is an insurance policy with minimum premium requirement and minimum payment terms. You cannot take premium holiday or terminate a QDAP policy early without incurring penalties. Once you qualify for annuity withdrawal, the policy will provide guaranteed and non-guaranteed returns varied by different insurers.
You should also pay attention to the guaranteed break-even period of each plan. The minimum break-even period is currently 8 years among all plans in the market for policy holders to recover all premiums paid. While the absolute return is zero, the policy holders get to enjoy 5 years of tax savings.
TVC is more flexible as you can adjust contribution amounts and contribution frequencies based on your financial circumstances each year and minimum contribution amount can be as low as $300-$500. You will be responsible for making funds selection based on your own investment objectives and risk tolerance and bear market risks. TVC balance, like your mandatory contribution, cannot be withdrawn generally until age 65.
If you are currently 30 years old and wish to invest in equity funds long term to get market return and tax savings, TVC could be a good choice as return of equity funds outperform inflation over a long period of time. TVC could also be a good choice when you are near retirement age as one could simply invest in conversative or guaranteed funds just to enjoy the tax savings and get back the original contributions at retirement.
You should review your own tax and employment status when making a choice. If you expect a steady and stable stream of income and prefer guaranteed returns, QDAP might be a good option. On the other hand, if you want more flexibility with contribution amount and frequency and take control of investments in your own hand, TVC might be your choice.
If you would like to learn more about the features and promotions from various providers in the market, you are welcome to contact us.
Last update: 8th March 2022
