Free €2500 SSIA/Pension Incentive makes no sense

C

cronley

Registered User
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I dont see any sense putting €7500 of my SSIA & the governments €2500 into a PRSA. They take the 2500 back from you by taxing the drawings from the pension fund when you retire. Am I missing anything here.
 
Yes - you may be able to receive it all tax-free when you retire, or at least 25% of it.
 
cronley said:
Am I missing anything here.
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Yes - in addition to the above tax issues are important but should not necessarily deflect one from planning to find one's retirement years. A high rate taxpayer gets 42% tax and 6% PRSI/health levy relief on pension contributions. The pension fund will grow tax free in the meantime. At retirement one could feasibly take a 25% lump sum tax free and pay no tax (if below the income tax exemption thresholds) or standard rate tax (20% now but could be different in the future) on pension income. In such a situation there is still a tax advantage even though one may be paying some tax. It's shortsighted to dismiss pensions just because there may be some tax due in the future. Of course what's appropriate really depends on your specific individual circumstances and goals.
 
CapitalCCC
Please explain how you can receive it all tax free. I understand that 25% of the PRSA can be taken tax free, but the other 75% is taxable when drawn.
 
HOW CAN IT ALL BE TAX-FREE:

Here is just one way...

If it goes in to an occupational pension from which your tax-free lump sum at retirement turns out to be 150% of final salary (for example more than 20 years of service with related company) then it may well be that your entire pension fund is a tax-free lum-sum (including this part).
 
Or ... you take 25% lump sum tax free and buy an annuity with the rest but the income accruing is below the income tax exemption threshold.
 
Thanks folks. I need to do some more sums on my own circumstances, to work this one out.
 
Unless you had already maximised your pension contributions for a tax year!
 
CapitalCCC said:
Unless you had already maximised your pension contributions for a tax year!
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That's an interesting point that I'm not sure was ever mentioned before. Hmm.... I'm on 42% and have maximised my pension tax/PRSI relief for 2005 and 2006 so far so maybe this SSIA to PRSA transfer incentive would be useful to me? Or can you maximise your normal annual pension tax/PRSI relief and avail of this incentive?
 
Yes Club you can do both.

I have mentioned this before (I think!).

Remember the fact remains that you have to be on a salary of less than €50k in year before SSIA matures?
 
Hi

Without wanting to go too much off topic, I've heard some suggestions that people who are already retired (with only a state pension, lets say), can put their SSIA into a new privately established pension fund, get the Government subsidy & subsequently withdraw it.

Can anyone explain how this works (if it's true) please ?

Thanks

G>
 
The smiley was a clue that I was actually being facetious. Sorry for causing you any confusion. I'll try to be clearer next time.
 
Garrettod said:
Hi

Without wanting to go too much off topic, I've heard some suggestions that people who are already retired (with only a state pension, lets say), can put their SSIA into a new privately established pension fund, get the Government subsidy & subsequently withdraw it.

Can anyone explain how this works (if it's true) please ?

Thanks

G>
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This is exactly the reason why Brian Cowen brought in the fact that if you withdraw from your pension within 1 year you lose the govt bonus
 
That's an interesting one I was not aware of, Clubman!

Just to give an example, what is the income tax exemption threshold these days? I know the laws could be changed later...
Do I understand correctly, if I was a low earner and underneath a certain threshold as a pensioner, I would not be asked to pay tax on my PRSA annuity returns?

Fanny

ClubMan said:
Or ... you take 25% lump sum tax free and buy an annuity with the rest but the income accruing is below the income tax exemption threshold.
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Fanny said:
Just to give an example, what is the income tax exemption threshold these days?
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[broken link removed]

For example somebody over 65 can earn €17K p.a. without paying any tax - €34K if they're married.
Do I understand correctly, if I was a low earner and underneath a certain threshold as a pensioner, I would not be asked to pay tax on my PRSA annuity returns?
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Yes.
 
boaber said:
This is exactly the reason why Brian Cowen brought in the fact that if you withdraw from your pension within 1 year you lose the govt bonus
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So it's a year and a day then or something similar and the retired person is "home free" ?

- actually, Im quite interested in this for a close relative who is retired and could benifit.

Thanks

G>
 
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