What investment method would you recommend for someone who is a low income earner on 20% tax (by choice- suits work/life balance), late 40s mortgage free, frugal. State savings are quite poor right now, like all savings. I will go with this option if there are no better choices. I’ve seen a lot of U.S. investors start off with index funds and ETF'S but I know we have something here to do with tax on those every 8 years?? Every Irish personal finance investing method seems to benefit those paying 40% tax, what is there for the lower income earner if any? I am an sna (just starting out) so have just begun their single pension scheme and likely to be on 20% tax until retirement as the bands have widened again in the last budget.
Any point investing if on 20% tax bracket (by choice)
- Thread starter maura
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This is my specialist subject.
Getting your investments taxed under general tax principles (income tax and capital gains tax) is ludicrously complex in ireland and many, if not most, people end up with a wholly unsatisfactory result of exit tax at a flat rate of 41% on their income and gains instead of the more favourable marginal rate of income tax which in your case will be around 20% plus USC and PRSI if applicable.
If you have earned income then pension contributions are still tax efficient. As you are mortgage free you should make maximum pension contributions as you will receive 20% tax relief.
This is somewhere where paying for good advice will literally pay dividends
everlake.ie
Getting your investments taxed under general tax principles (income tax and capital gains tax) is ludicrously complex in ireland and many, if not most, people end up with a wholly unsatisfactory result of exit tax at a flat rate of 41% on their income and gains instead of the more favourable marginal rate of income tax which in your case will be around 20% plus USC and PRSI if applicable.
If you have earned income then pension contributions are still tax efficient. As you are mortgage free you should make maximum pension contributions as you will receive 20% tax relief.
This is somewhere where paying for good advice will literally pay dividends
Everlake Approach to Investing - Everlake
Investing your savings in bond & equities can be daunting. Here are the key considerations when putting an Investment Plan in place.
everlake.ie
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NoRegretsCoyote
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What does your pension look like?
That is simply untrue.
Invest in shares and gains are subject to CGT whatever income tax bracket you're in for example.
Invest indirectly in unit linked funds and, again, your marginal income tax rate is irrelevant.
It looks dreadful as I have only just begun having one.
did you start avc?
I was thinking of investing/saving for 14 years then maxing out an avc for the last 3 years of my working life by which time I may be on the higher rate of tax. I wish we had simple ways to do this like in the US or UK, with their roths and their isa’s. The SSIA was so easy for me as a regular person to understand back in the day.
as Marc says above, avc would be more tax efficient. every 100 you invest only costs 80.
your investments compound tax free which is far better than deemed disposal.
Early Riser
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There should be growth over the lifetime of the investment. But there will also be fees and charges. And drawdown will also attract 20% tax plus USC (and potentially PRSI, depending on age at drawdown). Also, the use of the money is locked off until retirement. This protects the investment but it is also a cost as regards life choices, especially as regards unforeseen circumstances. (One of which is not even surviving until retirement!)
There are potential rewards but as a life-choice it is not a "no-brainer".
Agree, a mix of saving into a pension and regular savings/investments can work better - not always in terms of maximizing tax relief but in terms of getting your money when you need it. I could easily see a future government, for example, pushing back the age people can access pensions.
Dividend income will be taxed at the lower rate if you're a lower rate tax payer. So an option could be to target dividend paying shares/etfs/trusts, you'll be able to keep or reinvest more of that dividend income than a higher rate tax payer. Though on small investments - this will only be a few euro a year anyway, but at least it does take into account your income tax status, unlike most other areas of Irish investment taxation.
(Dividends have complexity due to tax withholding rules around the world but might be worth a thought. )
This is a common misconception.
Many people in retirement only pay an effective rate of tax of around 9%
So tax relief at source combined with genuine gross roll up will mathematically trump alternative investments
Pensions are also available from age 50 so hardly tied up indefinitely
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But if the person's total retirement income brings them into the income tax bracket then they will be paying 20% on any drawdown from the ARF. That is the relevant figure when considering the investment value. No?
NoRegretsCoyote
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And not to mention the 25% tax free lump sum option
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There is no such option in a public service pension. But there is the possibility of using an AVC to bring the tax free lump sum up to the maximum of 120/80 of final salary. Maura has indicated elsewhere that she will not have full service at retirement. Provided she has at least 20 years service she can fund to bring the tax-free sum to this level. Many people use last minute AVCs for this purpose. It is always a good idea to max this out.
But that is different from funding for an ARF drawdown if the person is likely to paying tax at the same rate on any drawdown in retirement. The decision there is by no means as clear cut. There will probably be some gains but they will be a lot more marginal (and uncertain). And they come at a cost.
Sorry, didn't realise that it was a public service pension.