Tax Free Lump Sum

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dvpower

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Say I have an ARF with a value of 800k and this allows me to take a tax free lump sum of 200k.

Do I have to take this as one lump sum at retirement or can I take the 200k in smaller lumps over time?

If I plan to retire at 60, could I take 20 'lump sums' of 10k each between the age of 60 and 80?
 
You can “split” a PRSA so that you can have a phased retirement.

So for example if you “retire” €100,000 then you can have 25% of that €100k and the remaining €75k goes into a “vested PRSA” which functions exactly like an AmRF/ARF with the same rules around taking 4%pa etc

the key benefit here is that you only have a part of your pension retired so the balance remains invested. Where it continues to grow free from personal taxes and in the event of death is paid out in full as a tax free lump sum.

when you access the next tranche you get another bite of a lump sum (25% of whatever is taken) and a top up to the income account (vested PRSA)

this can work quite well if you have say college fees to meet in your 50s.

you crack open a small part of your pension to get the tax free cash and you aren’t obliged to take any taxable income until you are 61.

If you don't want any taxable income then you can crack open just enough to meet the AmRF requirement. So, retiring €84,666 would give a tax free lump sum of €21,166 with the balance in an AmRF and no requirement to take any taxable income until age 75.

It can be a bit tricky to get old pensions into a PRSA so you really need to plan this properly in advance but it can work well for some people.

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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Thanks for the info.

My plan would be to retire early at 60 taking around the 4% from my ARF as a retirement income and using the lump sum to fill the gap until my state pension kicks in.
I'd also set some of it aside for unforeseen expenses or to help the kids out with money towards deposits.

There seems little sense in having all of that money sitting in a bank account or self investing it (and paying CGT on any gains) while it could be growing in a tax efficient pension vehicle.
 
dvpower said:
There seems little sense in having all of that money sitting in a bank account or self investing it (and paying CGT on any gains) while it could be growing in a tax efficient pension vehicle.
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Except as a buffer against a stock market downturn, whereby you have access to 1 or 2 years worth of expenses, whilst allowing time for your pension to recover.
 
Yeah, that's a consideration.

My retirement date is a good few years out yet, but given how annuity rates have been and how low returns on bonds have been, it's hard to see any other solution that doesn't have exposure to equity markets.

I plan to retire early and live for a long time, so (hopefully) lots of time to ride out fluctuations in the stock market.
 
Steven Barrett said:
If it's all in one policy, it has to be taken in one go. If you have 10 policies, it can be taken at 10 different times.



Steven
www.bluewaterfp.ie
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so is the 25% lump sum based on each of the 10 policies value at the time you access it? i.e. 25% of value of policy 1 accessed on date A, 25% of policy 2 at date B, etc?
 
Ndiddy said:
so is the 25% lump sum based on each of the 10 policies value at the time you access it? i.e. 25% of value of policy 1 accessed on date A, 25% of policy 2 at date B, etc?
Click to expand...
Yes, it is 25% of the value of each fund at time of maturity.
 
Marc said:
You can “split” a PRSA so that you can have a phased retirement.

So for example if you “retire” €100,000 then you can have 25% of that €100k and the remaining €75k goes into a “vested PRSA” which functions exactly like an AmRF/ARF with the same rules around taking 4%pa etc

the key benefit here is that you only have a part of your pension retired so the balance remains invested. Where it continues to grow free from personal taxes and in the event of death is paid out in full as a tax free lump sum.

when you access the next tranche you get another bite of a lump sum (25% of whatever is taken) and a top up to the income account (vested PRSA)

this can work quite well if you have say college fees to meet in your 50s.

you crack open a small part of your pension to get the tax free cash and you aren’t obliged to take any taxable income until you are 61.

If you don't want any taxable income then you can crack open just enough to meet the AmRF requirement. So, retiring €84,666 would give a tax free lump sum of €21,166 with the balance in an AmRF and no requirement to take any taxable income until age 75.

It can be a bit tricky to get old pensions into a PRSA so you really need to plan this properly in advance but it can work well for some people.

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
Click to expand...
is the splitting only for PRSAs? not occupational DC plans?
 
That’s my understanding. We generally take a different approach with a DC plan.
Although you can transfer to a PRSA if you have less than 15 years in the scheme or the scheme is being wound up.
 
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