But how is it the compounding tax free if you end up paying it on the way out anyway?It’s misguided to aim for €37.5k of income just because that’s where the higher income tax rate kicks in.
The “relief at 40% and tax at 40% plus levies” argument is also misguided. It’s the tax-free compounding that’s the real secret sauce.
I think Gordon means that they are tax free while they are growing and that therefore tax does not reduce the compounding effect which is the greatest benefit of a pension, even if they are taxed at withdrawal.But how is it the compounding tax free if you end up paying it on the way out anyway?
Suspect pensions are a no-brainer for worker bees who have them mostly funded via employer contributions etc, but not so straightforward for the self-employed who can exploit other tax-efficient avenues all throughout working life also. That’s how it feels to me anyway, but open to correction!
What would these be ?but not so straightforward for the self-employed who can exploit other tax-efficient avenues all throughout working life also.
So the ARF would last 25 years at that rate, and since unlikely both spouses would live til 90, it’s possibly good estate planning of leftovers too for any dependents?
100%. I don't understand why people would want to have less money to do things in retirement so that they beat the tax man.Ideally, yourself and your spouse should have roughly the same sized pension pot, where possible.
@Sarenco, ThanksHaving said all that, “peak tax-efficiency” is reached at €800k (because of the €200k ceiling on the TFLS), so that’s a useful initial target.
Ideally, yourself and your spouse should have roughly the same sized pension pot, where possible.
Why not add another 300k of lump sum at 20% upfront. I think, overall 1.2 - 1.3 million at retirement is optimal to stay in 20% tax bandIf you've no other taxable income by then, yes. To do this would require a fund each of over €900,000. (25% lump sum would be €225,000, on which you'd pay €5,000 tax. Remaining ARF €675,000. Income of 4% of the ARF = €27,000.)
Various patent/royalty exemptions, 12.5% corporation tax on company profits, retirement relief etc. Many ways to minimise tax all throughout earnings life, so it's hard to get my head around how restrictive pension income seems to be.What would these be ?
But how is it the compounding tax free if you end up paying it on the way out anyway?
Suspect pensions are a no-brainer for majority ordinary workers who have them mostly funded via employer contributions etc, but not so straightforward for the self-employed who can exploit other tax-efficient avenues all throughout working life also. That’s how it feels to me anyway, but open to correction!
The sheer naivete of this.Various patent/royalty exemptions, 12.5% corporation tax on company profits, retirement relief etc. Many ways to minimise tax all throughout earnings life, so it's hard to get my head around how restrictive pension income seems to be.
But how is it the compounding tax free if you end up paying it on the way out anyway?
Suspect pensions are a no-brainer for majority ordinary workers who have them mostly funded via employer contributions etc, but not so straightforward for the self-employed who can exploit other tax-efficient avenues all throughout working life also. That’s how it feels to me anyway, but open to correction!
Pension income is exactly the same as employment income, but with a healthy dash of tax free lump sum. Not sure how you're seeing it as restrictive.Various patent/royalty exemptions, 12.5% corporation tax on company profits, retirement relief etc. Many ways to minimise tax all throughout earnings life, so it's hard to get my head around how restrictive pension income seems to be.
My point is that there’s a great variety of ways for the self-employed to structure their earnings in a more tax-efficient manner. May well be my own bias or rationale at play given I’m self-employed myself, but pension income sounds a lot like going back and taking a salary working for ‘the man’! That’s exactly how my pensions advisor put it too, that it’s as if Zurich will be basically paying my ‘salary’ in retirement . A huge mindset shift (on my part at least.)!The sheer naivete of this.
The self-employed don't pay corporation tax.
Patent royalty exemption is available only in a vanishingly narrow set of circumstances and to a vanishingly narrow set of beneficiaries.
Retirement relief has nothing to do with income.
There really aren't though.My point is that there’s a great variety of ways for the self-employed to structure their earnings in a more tax-efficient manner
Yes, but maybe only great if you’re not paying for it yourself!Some of this doesn’t seem a million miles from turning down a promotion and a higher salary because it results in a higher salary. Paying tax at the higher rate is fundamentally a good thing because it’s a function of success.
Yes, but maybe only great if you’re not paying for it yourself!
By contributing lots into a pension the self-employed are basically forgoing earnings today to ‘pay’ themselves (and the taxman) in the future.What does that mean though?
I think that's a fair assessment.. except that the future income will be higher than the current income forgone due to growth in the pension fund. This can be significant due to compounding. It also ignores the preferential tax treatment of the 25% lump sum.By contributing lots into a pension the self-employed are basically forgoing earnings today to ‘pay’ themselves (and the taxman) in the future.
Not quite the same as turning down a higher salary funded by a third party.