Hi all,
I saw a worked example on maximizing pension relief online and it didn't seem right. Perhaps you could have a look and tell me if I'm reading this wrong:
Example: Laura is 42 and earns €50,000 per annum from employment. Her maximum individual pension contribution is 25% of €50,000, so €12,500.
Laura’s marginal tax rates will depend on his personal circumstances, but a total marginal rate of 40% would be normal for someone on this income level.
Due to tax relief, making the €12,500 contribution to her pension will reduce Laura to only €7,500.
Now surely, a total marginal rate of 40% would not apply to the full 12,500?
Given that the 40% rate kicks in at 40k, should it not be 10,000 at 40% and then 2,500 at 20%?
So the actual net cost to Laura of making the pension contribution of 12,500 is €8,000 and not €7500 as stated above?
I saw a worked example on maximizing pension relief online and it didn't seem right. Perhaps you could have a look and tell me if I'm reading this wrong:
Example: Laura is 42 and earns €50,000 per annum from employment. Her maximum individual pension contribution is 25% of €50,000, so €12,500.
Laura’s marginal tax rates will depend on his personal circumstances, but a total marginal rate of 40% would be normal for someone on this income level.
Due to tax relief, making the €12,500 contribution to her pension will reduce Laura to only €7,500.
Now surely, a total marginal rate of 40% would not apply to the full 12,500?
Given that the 40% rate kicks in at 40k, should it not be 10,000 at 40% and then 2,500 at 20%?
So the actual net cost to Laura of making the pension contribution of 12,500 is €8,000 and not €7500 as stated above?