Yes, but she doesn't "believe in" pensions....
Looking for Advice on managing a windfall sum. Family of Four
- Thread starter Luap76
- Start date
One other thing that I don't think has been mentioned here, is that the OP could pre-fund their pensions. Given the amounts involved, being debt free and considering the capacity to meet any emergency situations through increased cashflow/credit cards etc. The investment strategy is very pension focused anyway. Cashflow will increase significantly with the Mortgage paid off, AVC's can be stopped at any time and (half?) the tax relief can be claimed on a month to month basis anyway.
Can you explain what that means please?
The OP will have c. 35/40k after paying all debt and maximising AVC scope inc. claiming tax relief etc. Taking a five year view, the OP is planning to continue AVCs and possibly hold an emergency fund/portfolio of stocks.
I’m suggesting this is not ideal given that from an investment perspective, their best option is a pension wrapper. They could contribute the lump sum to pension now. Tax relief will accrue over time rather than immediately, however they will benefit from tax free return. In 4 years time the tax relief threshold will increase to 30%. On a cash flow basis they may not be in a position to maximise this but would make sense to use their after tax investments in this scenario. Pre funding would make sense if you are going to invest in your pension anyway. Essentially front load your AVCs. Time in the market etc.
Brendan Burgess
Founder
- Messages
- 52,119
Hi Itchy
Say my salary is €100k and my contribution limit is 25% or €25k.
Are you suggesting that if I have €40k, I put it in the pension fund now?
I will get €25k tax relief immediately but €15k will be carried over.
Brendan
Say my salary is €100k and my contribution limit is 25% or €25k.
Are you suggesting that if I have €40k, I put it in the pension fund now?
I will get €25k tax relief immediately but €15k will be carried over.
Brendan
Gordon Gekko
Registered User
- Messages
- 7,373
I wonder whether she believes in poverty…
Yes. For various reasons. The main advantage that I can see is that they will have scope to avail of further tax relief in the future. They likely will (by selling their after-tax investments). Just make the investment now and avail of the tax free gains they can "drawdown" the tax relief as it accrues or completely stop their AVCs which increases ready cash with no loss of tax advantage. The main disadvantage is that they wont have access to a lump sum (i.e. you share portfolio). This is mitigated by the significant increase in monthly cashflow (mortgage payment gone, avc can be stopped, tax relief can be claimed as it accrues).
The OP will be posting here in 5 years time saying "I have scope to increase my pension contribution but I have no extra income. I have a 60k share portfolio, does it make sense to sell some shares to avail of the tax relief?"
Is there any point contributing to a PRSA without tax relief?
The answer seems obvious to me but is there any point in making contributions to a PRSA/pension in a given tax year when you have no tax liability anyway?
www.askaboutmoney.com
Does it ever make sense to ignore pension contribution tax relief?
Hi, I am wondering if there are scenarios to ignore the tax relief on pension contributions. I have a well funded DC employer pension with significant company matching / contributions which mean it makes sense for me to exceed the threshold for tax relief. In effect for every €2 contribution I...
www.askaboutmoney.com
Key Post - Contributing to DC pension in excess of tax relief limit
Hi, I have excess funds that I would like to invest in shares (I have a rainy day fund in place, tracker mortgage 20yrs/ €300k that I overpay each month and a mortgage free investment property) my DC pension is 650k and 80% equities with Zurich and blackrock. I am 45 with no dependents and...
www.askaboutmoney.com
Overpaying AVCs beyond age related tax relief bands
Hi I recently turned 55 and upped my AVC pension contributions to 35% to avail of max tax relief for this age band. I pay tax at the higher rate, I noticed in my payslip that the AVC deductions are split into 2 parts 5% which is my employee matching contribution and 35% which is my AVC...
www.askaboutmoney.com
Thanks for explaining that.
I'll keep it simple..
200k is nice - it not excessive
The feeling you get from having a nice home and owning it outright is really good. So pay off the mortgage and personal loan.
That saves you 12k a year.
Stick 4k into a college savings fund for the kids.
Then use 5k-8k to enjoy a destination holiday every year and raise a glass on every holiday to the source of the 200k.
Sometimes its nice to enjoy things when you are young
200k is nice - it not excessive
The feeling you get from having a nice home and owning it outright is really good. So pay off the mortgage and personal loan.
That saves you 12k a year.
Stick 4k into a college savings fund for the kids.
Then use 5k-8k to enjoy a destination holiday every year and raise a glass on every holiday to the source of the 200k.
Sometimes its nice to enjoy things when you are young
OP: another word of advice, try to get into the savings habit. Judging from your posts, your savings total derives from the windfall you received last year. I assume you had no savings up to this point as you said both yourself and your wife are generally spenders. You need to take advantage of this period of having extra cash, to build upon it; particularly if you will no longer have c.€900 per month going on mortgage payments. You should divert this amount (or a significant chunk of it) to savings each month. €10K per year would be a nice lump sum come retirement!
Thank you everyone for all your help. I paid off our mortgage and personal loan today after listening to all your advice. It cost a total of €152,000 and we have €50,000 left over which we haven’t decided what to do with yet. We also intend to look into my wife’s pension and see where that’s at. But as of now we have no debts, our house is ours and we will be €1300 a month better off. Thanks everyone
Congratulations, brilliant position to be in! Enjoy
Hooray!!
You'll need more than 4k for the kids' college fund.
If you live outside Dublin and they need accommodation, you are looking at around 10k per year just for the apartment.
That's 40k per kid per degree.
Then 3k college fees, then food, travel, clothes etc around 3k.
If you live outside Dublin and they need accommodation, you are looking at around 10k per year just for the apartment.
That's 40k per kid per degree.
Then 3k college fees, then food, travel, clothes etc around 3k.