The “Cashback” from LHDN: How PRS Saves You Tax Money
Saving for retirement in your 20s often feels like a chore, but the Malaysian government has a way of making it feel like a reward. The Private Retirement Scheme (PRS) is a voluntary investment designed to supplement your EPF. While the long-term goal is a bigger nest egg, the immediate benefit is a massive "discount" on your annual income tax.
The RM3,000 Gift
Under the latest Budget 2025 updates, the government has extended the RM3,000 individual tax relief for PRS contributions until the year 2030. This is not just a deduction; it is an incentive that essentially lowers your taxable income by up to RM3,000.
The actual "cashback" you get depends on your tax bracket. For example:
- If your taxable income is RM55,000 (11% bracket), a RM3,000 PRS contribution saves you RM330 in tax.
- If you earn more and sit in the 25% bracket, that same RM3,000 contribution saves you RM750.
Essentially, the government is subsidizing your retirement savings. You put RM3,000 into an investment fund that you own, and LHDN "returns" a portion of that money to you during tax season.
The Big Catch: Capital Risk
Unlike the EPF, which guarantees a minimum annual return of 2.5%, PRS is a market-linked investment. This means your capital is not protected. Because PRS funds invest in stocks and bonds, the value of your account can go down if the market performs poorly. While the tax relief acts as a "buffer," you must choose your fund wisely based on your risk appetite (Growth, Moderate, or Conservative) to avoid losing money in the long run.
How It Works: The Two Accounts
When you invest in PRS, your money is split into two sub-accounts as explained by the Private Pension Administrator (PPA):
- Sub-Account A (70%): This is strictly for your golden years and is locked until you reach the age of 55.
- Sub-Account B (30%): This allows for one pre-retirement withdrawal per year.
Standard withdrawals from Sub-Account B come with an 8% tax penalty, but there is a major exception. You can withdraw from this account without penalty for housing or healthcare reasons, such as buying your first home or paying for treatment for serious diseases. This makes PRS a powerful dual-purpose tool: it protects your future while providing a safety net for major life events today.