Taxable Lump Sum Drawdown

B

bravo

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Hoping to retire early with a very small pension pot and looking for the most tax efficient way of drawing down the full amount, as an annuity would generate about 1-1.5K p.a.
Have a small DC Pension with AVC's expected to be worth around 60K on retirement. No previous pension.
After taking the lump sum (15K) tax free I want to take the balance (45K) as a taxable lump sum, but can't seem to get any clarity on the potential tax liability.
My understanding is that it is above the "trivial pension" limit (up to 30k at 10%) so most likely would be taxed at 20%/40%
I intend to work for a number of months in my final year so will have used most of my tax credits under PAYE - can I use any available tax credits against my taxable lump sum or do I need to? or can I expect to pay 40%? I assume I will also be liable for PRSI/USC.
If it's taxed at 40% I see my only other option is ARF where I would draw down the full pot over a short number of years (to avoid 40% and take advantage of tax credits).
Thanks in advance for any advice.
 
The ARF would give you a flexible method to drawdown your pension at the lowest possible tax rate.

Do you have 2080 reckonable Prsi contributions in order to qualify for the full contributory pension ?

If not the ARF could be used to generate more reckonable Prsi contributions.
 
S class said:
The ARF would give you a flexible method to drawdown your pension at the lowest possible tax rate.

Do you have 2080 reckonable Prsi contributions in order to qualify for the full contributory pension ?

If not the ARF could be used to generate more reckonable Prsi contributions.
Click to expand...
Thanks S class,
Should be ok on the 2080 contributions, but trying to figure out if I can take the full lump sum at a reduced tax rate and if any unused tax credits can be used against it - looking at about 2 years time (I know things can change) but forward planning.
 
You will be able to use the ARF drawdowns to make use of both your personal and PAYE tax credits. You could set the ARF drawdown to a level to use up your full credits.
This would maximise your possible tax free earnings per year.

The only inflexibility would be the rule that you must drawdown a yearly minimum of 4% from your ARF from age 61.
 
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