We have talked about investing in UITFs in one of our articles. But I want to emphasize more on one particular account every Filipino should have in their portfolio.
This is the Personal Equity Retirement Account or PERA Account. This account is so beneficial; it deserves its own article.
What is a PERA Account?
A PERA Account is a voluntary investment vehicle that allows you to build up your retirement fund. It is mandated by RA 9505 PERA Law and is open for all Filipinos with a TIN number and identifiable income.
Currently, you can open a PERA Account in either BDO or BPI as administrators. And you can choose up to five investment UITFs to diversify your PERA portfolio.
You can invest for as low as PHP 1,000. While the maximum amount you can put PER YEAR in a PERA account is PHP 100,000 and PHP 200,000 for Overseas Filipino Workers (OFWs).
The UITFs you invest in depends on your risk appetite. Check this guide to help you in deciding what to get.
But why should you open a separate PERA account with a limited investment amount per year when you can open a normal one with an unlimited amount?
First of all, it’s TAX-FREE
Gone are the days when taxes chip away every income you make. The 20% from the interest in your bank accounts, the usurious Income Taxes from your day job, and monthly percentage taxes and VAT from your business are just some examples.
The PERA law mandates a tax exemption for all the income your account is earning. If you’re going to save up anyway, why not open a separate account and max out your PERA account every year?
Enjoy TAX CREDITS
Secondly, the government encourages you to invest for your future. With that, they are giving us a 5% Tax Incentive for the total amount invested in the account. And for OFWs, the amount can be used as a tax credit when paying for incidental taxes in the Philippines (like Capital Gains for Properties).
You earn a free 5% from the money that you’re going to save anyway. More bang for your buck.
No More Probate for Your Heirs
Worse comes to worst, in the case of death, the account is not needed to be probated (proving of a will in the court) for your heirs.
This costly procedure plus the estate tax will also be not applicable when passed on. It is directly distributed to your heirs. Certainly, a good perk tax-free for your family.
I am sold. But When Can I Withdraw?
The amount is withdrawable at the age of 55 or in cases of hospitalization of more than 30 days.
In case of emergency needs, you just pay a penalty of 20% of your total fund income on top of the 5% tax credits you claimed. But then, if you created a sensible emergency fund, I don’t think this would be a problem.
To Wrap Up
Saving for our retirement is our responsibility. We cannot rely on our kids or the government.
For a stress-free retirement, we should plan for ourselves and start as early as possible. In this case, with the PERA account, we should all start NOW.