PRSA & Earned income

[J.P.]

Hi,

First some backgrond info. I will turn 66 in 2023 & I hope to continue working for another 1 – 2 years, all going well. My current employment provides a modest income & is not pensionable, so in the absence of a pension scheme I started my own PRSA approx. 8 years ago. My employer does not contribute to the PRSA.
I’m also in receipt of a deferred pension from a previous employment since 2022 & later this year I will qualify for a full state contributory pension. My wife is retired and in receipt of a full state contributory pension since January 2023. Given the additional pension related income steams we are now in receipt of, my marginal rate of tax is now 40%, which had been 20%.

To my questions :

• At age 65, my maximum age-related allowable contribution to my PRSA for tax relief purposes is 40% of earnings – can I use my Deferred Pension income + my State Pension income , in addition to my salary as "earned income" ?
• As my marginal rate of tax is now 40%, I assume any PRSA contribution that I make in 2023 will qualify for tax relief at 40% ?

Thanks



J.P.

 

[AAAContributor]

can I use my Deferred Pension income + my State Pension income , in addition to my salary as "earned income" ?

Even though your pension from a previous employment and the State Pension will be subject to income tax, I don't believe that these count as relevant income ('earned income').

I have nothing definitive that I can link to in order to back this up, but the rule of thumb I believe is that if the income stream stops when you stop working, then that is what you use for the purposes of 'earned income'. Pension income from previous employments, State Pension, dividends, rents etc do not stop when you stop working and so these would not count as 'earned income'.

As my marginal rate of tax is now 40%, I assume any PRSA contribution that I make in 2023 will qualify for tax relief at 40% ?

To the extent that 40% (age-related contribution allowance) x 'earned income' (up to a max of €115k) is less than or equal to the amount of income that is subject to the higher rate of tax, then you will receive tax relief at 40%.