Basic question on maximising AVCs

[Wiresandmore]

Hi

I turn 55 next year and therefore can contribute from Jan 1 at 35% of 115000 = 40250

To check:

This is only the employee side? In other words, the matching employer contributions (in my case 7%) do not count towards this?
To work out my max AVC, I take my salary *0.07 and subtract that from 40250 (and then convert to monthly)?

Thanks

 

[Kev1964]

Hi

I turn 55 next year and therefore can contribute from Jan 1 at 35% of 115000 = 40250

To check:

This is only the employee side? In other words, the matching employer contributions (in my case 7%) do not count towards this?
To work out my max AVC, I take my salary *0.07 and subtract that from 40250 (and then convert to monthly)?

Thanks

The max annual employee (EE) contribution amount of €40,250 excludes any employer (ER) contribution.

It must include any required employee contribution. So if the scheme membership requires you to contribute 7% of your salary already, whatever this monetary amount is, you can’t exceed the €40,250 when AVC s are added, if you wish to stay within revenue rules on tax relief.

We have found that some payroll systems and or payroll teams are not familiar with people doing this and can get this wrong. It might be advisable to break any payroll instruction down into exact amounts ie 7% EE contribution with the financial € equivalent and then the AVC financial € amount. The monthly sum of these two € amounts x 12 should be €40,250.

 

[Wiresandmore]

Thanks - all clear. The issue is our payroll forces fixed percentage jumps, so not possible to exactly land on the 40250. Given that, I expect that best to aim below and then true-up when doing tax return?

 

[Kev1964]

Thanks - all clear. The issue is our payroll forces fixed percentage jumps, so not possible to exactly land on the 40250. Given that, I expect that best to aim below and then true-up when doing tax return?

Possibly, the differences might be so small as to make it immaterial.

 

[kierane]

Hi Wiresandmore,
An alternative of course is to do a lower % and top up with a cash AVC towards end of year to bring you to the max. tax free amount. Most schemes allow this but they may ask you for all the money laundering measures - ID, bank statements, source of funds etc. Then, you can claim the tax back yourself.
Note that you can also pay extra over the limit and carry the excess AVC into the next tax year - this is a good option when markets are low and you have a bit of spare cash.