NPS: Retirement planning is super important for everyone working and investing these days. With that in mind, the government introduced the National Pension System (NPS). This plan is not just safe but also comes with tax perks. Still, new investors often find themselves puzzled about whether to go for a Tier-1 or Tier-2 account.
Tier-1 account – a must for retirement
– This is the primary account of NPS, and you need to invest in it to build your retirement fund.
Investments in this scheme are tax-free under sections 80C and 80CCD(1B).
There are some restrictions on withdrawals. When it matures, the investor has to turn part of the fund into an annuity, which gives a monthly pension.
– This account is ideal for creating stable and secure funds over the long haul.
Tier-2 Account – Flexibility and Quick Withdrawals
– This is an optional account and can only be opened by those who already have a Tier-1 account.
– Here, the investor can withdraw money whenever they want, with no lock-in period.
– However, it doesn’t provide tax benefits, making it better for short-term savings or extra investments.
– It’s often suggested for investors who want easy access to their cash and the convenience of withdrawing at any time.
Tier-1 accounts are for those looking to secure their future and enjoy tax savings. Tier-2 accounts cater to those wanting to build extra savings and might need quick access to funds.
For new investors, it’s smart to start with a Tier-1 account since it offers both tax benefits and a retirement fund. Later on, if they need more flexibility, they can opt for a Tier-2 account. So, NPS provides a balanced choice for both types of investors—those after secure returns and those after liquidity.