what stamp is paid when drawing down from ARF

jpd

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For PAYE purposes ARF withdrawals are taxed as normal, the ARF provider is effectively, the employer.

For PRSI purposes, ARF withdrawals are effectively Income from Investments, and therefore subject to class S PRSI.

ARF withdrawals are treated as earned income for PRSI .

Only one of the above can be true - are ARF withdrawals earned income or un-earned income?
 

Early Riser

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Only one of the above can be true - are ARF withdrawals earned income or un-earned income?

It is a "distribution"!

"Any amounts withdrawn from an ARF are referred to as a distribution. A distribution is treated as income from an employment. It is subject to income tax and the fund manager must operate the PAYE system on it.

Under social welfare legislation any payments received by way of pension are not regarded as reckonable emoluments for the purposes of self-employed pay related social insurance (PRSI). However, unlike annuity products, ARFs are not pensions but are treated as assets. Distributions from ARFs fall within the charge to Class S self-employed PRSI, or if the recipient of the distribution is a modified class contributor, Class K. Class S contributions may be used to qualify for the State pension (contributory). Class K PRSI contributions do not give entitlements to any social insurance benefits."
 

fayf

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What happens if your ARF withdrawals are below the PRSI threshold?

Is the threshold an annual amount - i.e. if one takes €10k out in one go, must you pay PRSI on it?
Class S PRSI applies to all ARF withdrawals, there is no threshold for Class S. There are thresholds for other PRSI classes, but not Class S.
So to the question, the answer is yes, you pay 4 % Class S PRSI on all ARF withdrawals. The annual amount is irelevant.

See page 19 of this guide, where it confirms “All Income” is charged at 4 % for Class S, (eg no threshold)in this case, ARF withdrawals are classed as Income From Investments.
 
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bstop

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Having checked income details for 2020 on ROS this is how prsi S class is added for ARF distributions.

If the distribution is over 12500 euro 52 S class prsi contributions are allowed on a single yearly drawdown.

If the distribution is less than 12500 euro you will need to make monthly drawdowns to get the 52 S class prsi contributions.
 

fayf

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Having checked income details for 2020 on ROS this is how prsi S class is added for ARF distributions.

If the distribution is over 12500 euro 52 S class prsi contributions are allowed on a single yearly drawdown.

If the distribution is less than 12500 euro you will need to make monthly drawdowns to get the 52 S class prsi contributions.
Just curious, you had indicated in an earlier post, that your ARF withdrawals were well under 12,500, but you were still getting 52 weeks class S stamps, how does that link up with what you say above ?
 

bstop

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My ARF drawdown is less than 12500 and my wife's is more than 12500 per year . My wife had one drawdown for the year and got 52 S contributions. This year I suspended monthly drawdowns for a few months due to the collapse in stock markets caused by covid 19. I had 9 monthly drawdowns and got 40 S contributions. I had 12 monthly drawdowns last year and got 52 S contributions.

Basically if your ARF is less than 12500 you need to make monthly drawdowns to maximize S class contributions.
 
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murphaph1

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This is pretty amazing if true (which it certainly seems to be).

I'm 43 and I always wanted to retire at 50 but with Covid etc. I'm thinking I might just enjoy life and finish up now. I have 13 * 52 reckonable contributions (I have an up to date statement from the DSP). I left Ireland to work in Germany and so I was prohibited from paying PRSI during my working life here. Now that I am not working (I have rental income in both countries) I am looking to make voluntary PRSI contributions and have completed a VC1 form and have been admitted as a voluntary contributor, though I am yet to hear back on how much they expect me to contribute.

I have a modest occupational pension fund in Ireland (currently valued at 100k) and I was going to take an annuity to have PAYE income so that I am entitled to the PAYE (Employee) Tax Credit (to reduce my rental income tax bill in Ireland) but then I saw that A(M?)RF distributions are considered PAYE income as well and so I was thinking I could take out the smallest annuity possible (to entitle me to the Employee tax credit until my death) and also take AMRF distributions monthly to receive 52 PRSI Class S (reckonable) contributions instead of paying at least €500 in voluntary contributions. The annuity is a pension and therefore appears to not bring any reckonable PRSI contributions, whereas the AMRF does?

Does this sound like a reasonable plan or are there gaping holes in it?

It may well be that the DSP says I have to pay PRSI on my Irish rental income if I want to voluntarily contribute at all. I am waiting for feedback from them there. It's a bit confusing as I am not obliged to pay PRSI on that rental income as I am non-resident (and I was actually prohibited from paying PRSI while employed in Germany as it was socially insured employment in another EU state) but now I want to voluntarily pay PRSI. I am unsure if the DSP will allow me to pay the €500 minimum or will insist that I just pay 4% or whatever it is on my Irish rental income.

An option possibly open to me is to grant my wife a limited interest (until I'm say 67) in my Irish property so that the rental income would be hers and not mine. Irish rental income is NOT taxable in Germany and does not even need to be declared in the tax return. We are jointly assessed here anyway.
 

NoRegretsCoyote

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@murphaph1

You can only make voluntary contributions if you left Ireland within the last five years.

I'm pretty certain that you are not allowed to pay Class S on your Irish rental income as you are non resident. So your only option is voluntary contributions.
 

murphaph1

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Hi NoRegrets. In fact I can make voluntary contributions if I left socially insured employment in the EU in the last 5 years and having the minimum of (I think) 520 reckonable contributions in Ireland. I already have that much in writing (twice, once by email and now in a letter). My time in Germany in socially insured employment is counted as if I were still in socially insured employment in Ireland so to speak. So voluntary contributions are definitely possible in a case like mine. I have already been accepted as a voluntary contributor based on these facts and having submitted VC1 with a copy of my German social insurance record (as requested by the department in the initial email response to my query).

If rental income PRSI contributions cannot be made at class S as a non resident, then this is a good thing as it would be well over the €500 minimum contribution I'd likely be assessed for as a simple voluntary contributor. Clearly I want to pay as little as possible for my reckonable contributions and as we are likely to be under a total contributions approach by the time I reach 67 or 68 then it makes sense to start paying in now already and not waiting the 5 years out. Under a TCA I guess each €500 contribution would be worth roughly 1/40 of the contributory pension so you'd get all your contributions back in 18 months and even if I die prematurely, it would entitle my wife to a far better survivor's pension than in Germany.

I'm more curious about the annuity + AMRF "trick" I mentioned above but on rereading my own post I see an error. I don't need the annuity to death to claim the PAYE tax credit. The DSP pension entitles me to that credit already once I reach pensionable age. I just need to use the AMRF income to allow me to claim it from age 50 already.

If the PRSI paid on the AMRF income (taken monthly) entitles one to 52 reckonable contributions then I could cease voluntary contributions in 7 years already and still receive those reckonable contributions. I'd like to hear if anyone else can confirm that (sub €500) PRSI paid on AMRF income (taken monthly) does indeed result in 52 reckonable contributions appearing on your record.
 
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