ARF Mandatory withdrawal at age 61

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marsaday

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I understand that if a person is lucky enough to have an ARF from a private pension scheme , that they are obliged to take a mandatory payment of 4% in the year that they hit 61 or otherwise pay full tax on the notional withdrawal.
My question : Does it make a difference , tax wise whether this first withdrawal is taken , in theory on say , 1st January or 31st December ?
Say for example , one's 61st birthday was in June 2023 will the tax on the amount taken be accounted for in a person's 2023 tax year revenue returns no matter when the 4% payment is taken out ?
I hope my question is clear . If not I will try to clarify for ye. Thanks in advance.
 
You are required to take a 4% drawdown in the calendar year you turn age 61. If you do not opt to take the drawdown, most ARF providers will make the drawdown on your behalf in either Nov or Dec on that year. They will deduct tax at source, pay you the net amount and will account for such tax with Revenue.
 
Conan said:
You are required to take a 4% drawdown in the calendar year you turn age 61. If you do not opt to take the drawdown, most ARF providers will make the drawdown on your behalf in either Nov or Dec on that year. They will deduct tax at source, pay you the net amount and will account for such tax with Revenue
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Conan said:
You are required to take a 4% drawdown in the calendar year you turn age 61. If you do not opt to take the drawdown, most ARF providers will make the drawdown on your behalf in either Nov or Dec on that year. They will deduct tax at source, pay you the net amount and will account for such tax with Revenue
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Thanks Conan. As I thought. No advantage /disadvantage either time of the year you take it. I presume if you have a shortfall in what you take early in the year , your ARF provider will calculate the difference and pay out the difference minus tax in Nov/ Dec and that's all part of your 2023 tax year activity and returns. Thanks again.
 
marsaday said:
Thanks Conan. As I thought. No advantage /disadvantage either time of the year you take it. I presume if you have a shortfall in what you take early in the year , your ARF provider will calculate the difference and pay out the difference minus tax in Nov/ Dec and that's all part of your 2023 tax year activity and returns. Thanks again.
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Correct.
 
The Revenue use the valuation of the ARF as at 30 November each year. If you took a withdrawal on 1 January and the value of your ARF has gone up, they will pay you the difference based on the value as at 30 November each year.


Steven
www.bluewaterfp.ie
 
When you say @Conan
"They will deduct tax at source, pay you the net amount and will account for such tax with Revenue"

What tax rate will they use?
Lower tax rate?
 
moneymakeover said:
When you say @Conan
"They will deduct tax at source, pay you the net amount and will account for such tax with Revenue"

What tax rate will they use?
Lower tax rate?
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Marginal rate tax (unless you give them your tax credits). Any overdeduction you can claim back in your tax returns.
 
If your goal is to reduce your tax on ARF income you will pay less tax if you take out withdrawals earlier in the year. In effect you reduce the mandatory rate of withdrawal by a small amount. This assumes that the fund doesn't collapse in value by the 30th of November.
 
Oisin19 said:
If your goal is to reduce your tax on ARF income you will pay less tax if you take out withdrawals earlier in the year. In effect you reduce the mandatory rate of withdrawal by a small amount. This assumes that the fund doesn't collapse in value by the 30th of November.
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How so?
 
Oisin19 said:
If your goal is to reduce your tax on ARF income you will pay less tax if you take out withdrawals earlier in the year. In effect you reduce the mandatory rate of withdrawal by a small amount. This assumes that the fund doesn't collapse in value by the 30th of November.
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How would that work in practice, to reduce your tax on ARF income?
 
by taking out funds before the relevant date your total ARF assets are less for the calculation at the 30/11. As a result of this the specified amount is lower and thus your tax is lower.
 
Oisin19 said:
by taking out funds before the relevant date your total ARF assets are less for the calculation at the 30/11. As a result of this the specified amount is lower and thus your tax is lower.
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I still don’t get your point.

It’s lower in November because you simply took it out earlier which made it higher earlier in the year.

The net position is the same.

If my ARF’s worth €1m and I’m 62, I have to take out €40k.

What’s the difference tax-wise if I take €40k in November or €20k in January and €20k in November?
 
30th November, 1m X 4% = 40,000 to be withdrawn by year end
Sc2. Take out 30k on 29th of November. Now calculation is 970k x 4% = 38.8k. 8.8k to be taken by end of year. Income is 1.2k lower which means less tax paid
 
Gordon Gekko said:
I still don’t get your point.

It’s lower in November because you simply took it out earlier which made it higher earlier in the year.

The net position is the same.

If my ARF’s worth €1m and I’m 62, I have to take out €40k.

What’s the difference tax-wise if I take €40k in November or €20k in January and €20k in November?
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I think I get it. Take €30K in January. Value in November is €970K. Required withdrawal is €970K x 4% = €38,800, less the €20K already taken.

A bit less than taking €40,000.
 
Oisin19 said:
by taking out funds before the relevant date your total ARF assets are less for the calculation at the 30/11. As a result of this the specified amount is lower and thus your tax is lower.
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Sorry but I'm still not getting this at all??
The only reason I see why you're paying less tax is because you're withdrawing less from the fund €38.8k as a opposed to €40k
and the only advantage to this if it could be called an advantage is to reduce the amount of the 4% withdrawal that you have to take??

I don't know this but do revenue not take into account all withdrawals in the year prior to 30th November as well as fund value on that date
or do they just look at the fund value on that date as the withdrawal is taxed (so to speak) separately ??
 
Cervelo said:
Sorry but I'm still not getting this at all??
The only reason I see why you're paying less tax is because you're withdrawing less from the fund €38.8k as a opposed to €40k
and the only advantage to this if it could be called an advantage is to reduce the amount of the 4% withdrawal that you have to take??

I don't know this but do revenue not take into account all withdrawals in the year prior to 30th November as well as fund value on that date
or do they just look at the fund value on that date as the withdrawal is taxed (so to speak) separately ??
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Oisin is correct. The liability is calculated as the value as at 30 November each year by the withdrawal % less any amounts already deducted that year. If there is still a liability after the withdrawals have been taken into account, a once off payment for the difference is made.


Steven
www.bluewaterfp.ie
 
Hi everyone, just reading above, I presume if you work until 65 and then convert your pension into an ARF at that point above does not apply?
Its only if you've converted to an ARF at age 60?

Thanks
Blarney
 
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