Tax Efficiency - Query

G

g00217810

Registered User
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3
A query, which will probably be quite straightforward for those here.

Assuming that you have just started paying into your company pension scheme, and are also due to receive a mid year bonus, what are the tax impacts if you look to direct that bonus into the pension.

In summary:
  • Salary of approx. 85k
  • Pension contributions of 5% of salary
  • Mid-year bonus of approx. 30k
Essentially, if I direct that 30k to my pension, what is the net outcome, and what impact does that have on my monthly contributions to the year end

Thanks
G
 
You can only get tax relief on €23k of pension contribution (20% of your €115k of income). Coincidentally €115k is the earnings cap. You're already contributing €4,250 regularly (5% of €85k). Therefore your lump sum contribution should be €12,750 (i.e. €17,000 less €4,250).

If you contribute the whole €30k, the position gets messy with tax relief carrying forward etc.
 
Last edited:
Can you ask your employer to pay some/all of the bonus as a company paid pension contribution? The tax people here may be able to clarify whether that would be salary sacrifice or not? If an amount isn't in your contract (which is unlikely for a bonus), you may be able to do it.


Steven
www.bluewaterfp.ie
 
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