# 30yo... Looking for best way forward!



## ThirstyLizard (10 Aug 2016)

Hi all,

I'm a long time lurker, 1st time poster. It's great to finally join the community.

We are relatively comfortable with our current financial position and would rate ourselves are good savers.  Our business has been growing over the past 12 months and we now find ourselves projecting a healthy profit for the current financial year of circa ~ €130,000k (in addition to our salaries - see below). The business doesn't required these funds to grow or to for general day-to-day operations.
__________

Age: 30
Spouse’s/Partner's age: 30

Annual gross income from employment or profession: €33,800
Annual gross income of spouse: €33,800

Monthly take-home pay: €4,500

Type of employment: Self-Employed via Ltd Co.

In general are you:
(a) spending more than you earn, or
(b) saving? Saving €1,500 - 2,000 per month.

Rough estimate of value of home: €330,000.
Amount outstanding on your mortgage: €250,000.
What interest rate are you paying? 3.3% (AIB <80% LTV) - €1045 monthly repayment with 34 years remaining.

Other borrowings – car loans/personal loans etc. None.

Do you pay off your full credit card balance each month? N/A.
If not, what is the balance on your credit card? N/A.

Savings and investments: €20,000 in regular saver accounts.

Do you have a pension scheme? No.

Do you own any investment or other property? No.

Ages of children: None. Planning/hoping for a child within the next 12 months.

Life insurance: None.

What specific question do you have or what issues are of concern to you?

With the significant increase in our earnings this year, we have found ourselves not really knowing where to go, or look, next... Is it a good time to start a pension? Or Invest? Or start overpaying our mortgage? Should we take the profits out of the company additional salary, or leave them in the company, or... Agghhh!!!

Basically we feel there are a lot of options available, which is great, but we are unsure of what is the best way forward! I'm hoping this is where the AAM community can step in and provide us with some advice... 

Thanks in advance!!


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## thedaddyman (10 Aug 2016)

some basic things first

make a will if you haven't done so already
If you are planning a baby then ring-fence some funds to cover both the costs of the baby stuff (buggies and car seat are expensive for example) but also to cover any potential drop in income due to maternity/paternity leave.
What are your longer term child minding options?
Do you live close to family, if not, will one or both of you have a desire to do so (if only to have a granny available for baby-sitting and support). in my case we moved 60 miles after the birth of our first smallie when we realized we needed that extra support
Once you've had the baby and assuming you can afford to do so, consider putting something aside monthly for the child's education etc when they are older


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## aristotle (10 Aug 2016)

You are only 30 so its always a great time to start a pension. Certainly you should consider that given the tax relief you can get.

Personally I would also pay down extra on the mortgage as well if you can from that 130k profit (whatever is left after pension contributions).

Is that 130k profit forecast a net figure? Fantastic, just clear off your mortgage over the next 2 years or so. No one complains about being debt free and you will be very wealthy in 10 years if you keep going the way you are.

Dare I ask what industry your business is in so I can go off and start a business in it?!


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## Steven Barrett (10 Aug 2016)

Why not look at doing a bit of everything.  

You don't have to commit to a regular pension, you can make a lump sum payment. 
Look at putting a lump sum to reduce your mortgage. 
Have a chat about what your future plans are for the next few years. Besides starting a family (kids are VERY expensive!!), are there other things you want to do that will cost money?
Build up other medium term investments
With projected projected profits of €130k, do you reckon this is sustainable and something you can enjoy every year? 

You should be looking at lifelong cashflows to ensure that you make good use of the money so you have access to capital when you need it and can carry on enjoying life. 

Well done on the successful business!!

Steven 
www.bluewaterfp.ie


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## Brendan Burgess (10 Aug 2016)

Welcome to Askaboutmoney.



ThirstyLizard said:


> Should we take the profits out of the company additional salary, or leave them in the company,



OK, this one is absolutely clear. You must take out the all the profits either as salary or as pension contributions. Do not leave profits in the company. They will be subject to Corporation Tax and then income tax or CGT when you eventually take them out. 

Does your company rent premises?  It's probably a good medium term objective to buy a premises in your own names and rent it to the company.  If this is an option, then it argues against tying up your money in a pension. 

While it's good to get a balance between pensions and paying down your mortgage, in my view, at 30, you don't need to worry about pensions yet.  Take the money out net and either keep it on hand to buy a property for the business or pay down your mortgage. 

Taking the money out is a great protection against reduced profits in the future or increased family costs.   Having cash in your own name or having a much smaller mortgage is much more flexible than having a fat pension. 

With your mortgage paid off, you will have plenty of time to start a pension. 

Brendan


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## ThirstyLizard (11 Aug 2016)

Thanks to those who have helped thus far, it's very much appreciated!



aristotle said:


> Is that 130k profit forecast a net figure? Fantastic, just clear off your mortgage over the next 2 years or so. No one complains about being debt free and you will be very wealthy in 10 years if you keep going the way you are.



The 130k is gross, so if withdrawing it from the company as additional salary we're talking half that, ~65k in personal cash after taxes...



SBarrett said:


> Build up other medium term investments
> With projected projected profits of €130k, do you reckon this is sustainable and something you can enjoy every year?



I would anticipate this is sustainable for the next 3 years at current levels, further out than that is too difficult to project at this point in time... Could be more, could be less!



SBarrett said:


> You should be looking at lifelong cashflows to ensure that you make good use of the money so you have access to capital when you need it and can carry on enjoying life.



Would you happen to have any recommendations/examples of lifelong cash-flowing investments?


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## Steven Barrett (11 Aug 2016)

Lifelong cashflows aren't investments. It is a plan for your future, adding in all the assumed income you will generate over your lifetime, then deducting all the potential expenditure you may have. It will identify gaps that you will have in your cashflow and what you need to do to plug those gaps. For some, the solution is to spend more money!


Steven
www.bluewaterfp.ie


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## johnny1234 (11 Aug 2016)

Thirsty, you have received some fine views for your next moves. All I might add is weigh up your options, yourself. Be careful not to get thrashed by any Financial sales men and only take an opinion from an accredited company that have reputable sales persons. Take nothing for granted and get everything in writing in case of future dispute.


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## Steven Barrett (11 Aug 2016)

johnny1234 said:


> Thirsty, you have received some fine views for your next moves. All I might add is weigh up your options, yourself. Be careful not to get thrashed by any Financial sales men and only take an opinion from an accredited company that have *reputable sales persons*. Take nothing for granted and get everything in writing in case of future dispute.



Or get someone who will give you good advice rather than try to flog you something!! 

Although, our regulator, the Central Bank thinks commission payments ie the selling of a product is a good way to pay for advice, so good advisors have a way to go to discard the "sales man" tag 

Steven
www.bluewaterfp.ie


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## gnf_ireland (11 Aug 2016)

SBarrett said:


> Or get someone who will give you good advice rather than try to flog you something!!


I agree with this. We all want 'free' good advice and then complain that someone is trying to sell us something at the end of it. There is no such thing as a free lunch as we all know.

I am in a similar scenario personally and believe that I will have to pay to get the advice I am looking for ! If reasonable sums of money are involved, paying for advice should be strongly recommended !


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## gnf_ireland (11 Aug 2016)

@ThirstyLizard  Firstly congrats on the successful business and your life situation at such an early age. If I was you, this is what I would do

1. Target paying down the mortgage to <50% in a given window (say 2 years) to avail of lower interest rates. If you done this tomorrow, you would be down to 3.1% with AIB. Either way, any increased competition is likely to target the lower LTV's first. Even set an interim target of <60% for the mortgage.

2. Agree with others here that if you are planning children think about putting some money away. Childcare is expensive, as is the initial costs of buggys and the likes. Not sure what your Health Insurance cover is like but you might want to consider this also. It would be nice to have a cushion for that, and can always be used to start your education fund for them  

3. I think you should start a pension - how much is up to you. Given the nature of the business & levels of uncertainty, I would be tempted to put 25% of that profit into a pension fund. I know it may sound like a lot but:
   - there is tax support of 40% on the money - no idea how long that will last
   - there is a heavy profit there to support it. May not be as good in other years and can reduce accordingly
   - you will benefit from compounding earlier, and makes a solid difference in the end
   - if you have children, you may have to take out extra salary to cover the increased costs, reducing profits
   - finally, its a good a time as any to do it  

Final comment, to echo what I said above - don't be afraid to pay for good financial advice. It should pay itself back in a very short time frame.


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## Gordon Gekko (11 Aug 2016)

Tax is a huge part of this. Your resources are within the company, and salary/bonus/dividend over and above what you're paying yourselves now are terrible from a tax perspective. You need to quantify the benefit of accelerating your mortgage repayments versus the downside of the extra tax which will arise on the extra income you draw from the company. My sense based on the limited information is that you would be better off aggressively funding pensions, allowing some profits to build up in the company with one eye on possible retirement relief claims, and taking modest bonuses (to perhaps chip away at the mortgage). Have a few horses in the race basically.


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## aristotle (11 Aug 2016)

Don't expect any earth shattering advice from independent advisors. In my experience of two of them, two fairly well known ones in ireland, they don't know a lot more than someone who has an interest and reads about financial topics.

I have personally paid €750 to one advisor and €300 to the other and really came away with a sense of just being more sure on what I already knew.

If you are a novice I can see the benefit or if you have a complicated set up like limited companies perhaps then again I would say there would be benefit.

But for a regular PAYE person perhaps with other sources of income and wondering what to do with a pension or investments then I didnt get much value as I am reasonably up to speed with basic knowledge on those things plus I use an accountant for tax returns. 

Or maybe I just had bad luck picking those two advisors.


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## Gordon Gekko (11 Aug 2016)

It sounds like it was the latter.


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## gnf_ireland (12 Aug 2016)

Gordon Gekko said:


> allowing some profits to build up in the company



For the funds that build up in the company, in effect you pay:
  - 12.5% Corporation Tax
  - 33% Capital Gains Tax (if taken out as Capital), otherwise Marginal Income Tax rates (if taken out as Income)

There is also a potential 15% Close Company Surcharge on 'undistributed trading income' for certain "service" companies. I guess a lot will depend on whether the OP falls into this category or not. If they do, I would question the benefits of building up funds in the company.

That said, I don't know if an accountant can come up with other mechanisms to benefit them.


But agree, the elephant in the room is that it is company funds currently, so taxation implications in most scenarios.

@ThirstyLizard  don't forget the 'holiday' bonus to pay for a nice break to remind you what all the effort is for ! No point having a stock-pile of funds in a company and not enjoying life ! When/if the kids come, it will seriously change your outlook !


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## Brendan Burgess (12 Aug 2016)

Gordon Gekko said:


> allowing some profits to build up in the company with one eye on possible retirement relief claims



I am really surprised that anyone still recommends this.  The guy is 30. How many years has he got to go to retirement? Is it likely that Retirement Relief will still be available? Is it likely that he will still be in this business? 

This particular issue is discussed in detail here: 
*Tax planning - company profits or director's salary?*


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## Gordon Gekko (12 Aug 2016)

Hi Brendan

That's why I suggest not putting all one's eggs in one basket. Pensions might also be taxed in a horrendous manner on the way out. I'm not suggesting that someone go "all in" vis a vis retirement relief. Just have one eye on it.


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## Steven Barrett (12 Aug 2016)

Brendan Burgess said:


> I am really surprised that anyone still recommends this.  The guy is 30. How many years has he got to go to retirement? Is it likely that Retirement Relief will still be available? Is it likely that he will still be in this business?



That's what I was thinking, plenty of water to go under the bridge between now and then. There will be lots of demands on that cash before it becomes time to hang up his boots. 


Steven
www.bluewaterfp.ie


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## Steven Barrett (12 Aug 2016)

aristotle said:


> Don't expect any earth shattering advice from independent advisors.



It works both ways Aristotle. I meet people looking for advice on their money and you tell at the end that they are disappointed that you haven't shown them a magic way to get money out of their company and into their own pocket without paying any tax. Our job is to advise people on the best way to structure their finances so they can continue to live the life they want. Or if they want to change it, what they have to do. Those who have gone on to become Certified Financial Planners have the skill and expertise to construct lifelong cashflows to help you plan knowing what the big picture will be ie what are the long term effects of the financial decisions you make. 

Some people are good at this anyway (plenty of them are on here) and don't need the help of a financial advisor. 


Steven 
www.bluewaterfp.ie


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## gnf_ireland (12 Aug 2016)

Brendan Burgess said:


> I am really surprised that anyone still recommends this.



There may be scenarios where this is valid. For example, if the company has a major capital programme to invest in, or are looking to liquidate/sell the company in the short/immediate term. It also may prove to be useful in cases of inheritance tax planning, as it would increase the value of the company being transferred.
The same may apply in cases where the company is looking to get increased funding from external sources (venture capitalists, banks etc) - a healthy balance sheet is always helpful there.
If the company is planning to expand, take on additional employees, cash flow would be important to ensure that wages etc are paid on time.

There is also the case where profits are irregular and fluctuate massively from year to year - in that case there is little benefit in taking out income at marginal rates in year 1 and not using the tax credits in year two etc.

In short, there are some reasons people would want to do that, but that cannot be determined based on the detail above - and needs full proper tax planning to 'justify' it.

Just one note from the link above re Close Company Surcharges - the Revenue have been running a National Contractors Project for a number of years now where they are in effect targeting personal service companies. I would be surprised if there was not a knock on effect on the definitions of this surcharge.


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## ThirstyLizard (12 Aug 2016)

Appreciate all of the advice provided thus far, it's very helpful to read through and see what options are available - even though there are some conflicting views...

Currently, my thinking is leaning towards extracting a large portion of these profits as salary - divided between my partner and myself, so as to avoid the higher rate of USC...

Tossing up whether to kick some of the profits into an Executive Pension, however it's difficult to get any detailed information on what funds are available online. Any help pointing me in the right direction here would be great!

Here are two scenarios that I've been playing with...

*Option 1 - Salary Bonus + Pension Contribution
*
Gross Profits = €130,000

Additional Gross Salary Bonus = €100,000 (€50,000 each) 
Additional Net Salary Bonus = €49,812.20 (€24,906.10 each)

Pension Contribution = €30,000 (€15,000 each between my partner any myself)


*Option 2 - 100% as Salary Bonus
*
Gross Profits = €130,000

Additional Gross Salary Bonus = €130,000 (€65,000 each) 
Additional Net Salary Bonus = €64,212.20 (€32,106.10 each)

Pension Contribution = ZERO


So, I'm thinking now... What is more valuable to me now and in the longer term? €15,000 extra as cash now OR €30,000 in a pension fund for 30 years... Hmmm....!

According to an online Mortgage Repayment Calculator, paying a €15,000 lump sum off my mortgage now would save me €29,627 in Interest Payments and I'd be mortgage free 3yrs 8mo earlier...

Would it be worthwhile meeting a specialist tax planner? They charge €200 - 400 per hour, so I'd want to be sure that it'll be worthwhile before committing as surely it would take multiple hours and could quickly add up...

Lots of food for thought anyhow!


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## gnf_ireland (12 Aug 2016)

ThirstyLizard said:


> So, I'm thinking now... What is more valuable to me now and in the longer term? €15,000 extra as cash now OR €30,000 in a pension fund for 30 years... Hmmm....!
> 
> According to an online Mortgage Repayment Calculator, paying a €15,000 lump sum off my mortgage now would save me €29,627 in Interest Payments and I'd be mortgage free 3yrs 8mo earlier...



so in essence you are proposing paying the 15k cash off the mortgage, which will save you around 30k in the medium term
30k paid into a pension fund now, compounded over 30 years assuming a 4% growth per year after all charges would be around 100k

Obviously a matter of personal choice, but it is all about getting the right balance that works for you personally !


BTW, what do you plan to do with the other 50k you are taking out ? as this may influence some of the decisions !


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## ThirstyLizard (30 Aug 2016)

Just a quick update...

Met with a Tax Consultant this week and one strategy that was put forth was to accumulate the profits in the company, with the view to liquidating/selling the company in the future.

Calculations as follows;

Profits = €130,000
Corporation Tax @ 12.5% = €16,250
Net Profit = €113,750 (left in the company)
CGT (Entrepreneurs Relief @ 20%) = €22,750.00

Net Proceeds upon liquidation/sale = €91,000  (an effective tax rate of 30%)

The net profits should (hopefully) continue to increase year to year, until the liquidation/sale event.

On the face of it, this would seem like a viable option.

I'm still trying to run different scenarios myself, and pulling out Pros / Cons for each, so to help me in my thinking, it would be great if any of you could give your thoughts and comments on the above strategy.

Thanks again!!


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## cremeegg (30 Aug 2016)

I suggest that you need to identify the principles behind the choices you will make first, certainly before you approach any financial advisor.

The first principle I recommend is that you take any capital surplus to business requirements out of the limited company. 

Money in the limited company is exposed to the usual risks of any business, it belongs to the company not to you, you should be realising some of your profits each year.  

Excess money in any business leads to poor decisions in my experience, for example if you have €130,000 excess cash in the bank account you will not chase your debtors like you would if you were strapped to meet next weeks payroll.

You need to do this in the most tax efficient way possible. I am surprised at the advice you received outlined above in post 23. When you approached that tax advisor did you say that you were thinking of selling the business in a few years, or was that the advisors idea. You never mentioned a sale in your previous posts on here. Either you want to sell the business within a time frame or you do not. Selling a business just for tax reasons is not to be taken seriously.

The second principle is about risk again. It appears that you and your spouse own everything 50/50. The ownership structure should be the result of a considered decision, not just the way things happened. From my personal experience. When we started out in life we agreed to share everything 50/50, no great thought went into that it just felt right. Roll on a few years to 2008, business was bad and it looked like we might loose everything. It would have been much more comfortable if my wife had owned the house with no mortgage and I had owned the business and its debts. We could have arranged things that way in 2005 or 2006 but it hadn't seemed important. There are a lot of other potential issues involved there but ownership structure could become crucial in a difficulty.

To my mind a pension ticks both these boxes. It is a tax efficient way to get money out of the company. A pension pot is (mostly) free from business risk.

I take BBs point that at 30 you don't need to think pension, but again going back to my own experience, I made sizeable pension contributions at a young age, and I am glad I did, i couldn't afford them now. Business has picked up fortunately but college fees soak up every penny.


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## trasneoir (30 Aug 2016)

ThirstyLizard said:


> €15,000 extra as cash now OR €30,000 in a pension fund for 30 years... Hmmm....!


20 years. Most pensions can be activated at 50 - could be a very realistic option if you're inclined.


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## zephyro (6 Sep 2016)

ThirstyLizard said:


> Tossing up whether to kick some of the profits into an Executive Pension, however it's difficult to get any detailed information on what funds are available online. Any help pointing me in the right direction here would be great!



I was actually facing similar decisions to you not long ago and for me at least an Executive Pension seemed like the way to go. I'm taking a salary of €42k with a personal pension contribution of ~€8k and company contribution of ~€18k all with tax relief, so my current salary is taxed at the lower rate. I have a relatively small outstanding tracker mortgage which is very cheap money so I'm not interested in paying this off early. Working anywhere near full-time would still result in significant profits building up in the company but for me at least it's not worth my while taking a salary at the higher rate given direct tax of 50% and a further 10% or so going to indirect taxes. Therefore I'm looking at either changing my tax residence (working remotely is an option for me) or reducing the amount of time I spend working. 

I could give you some details on the Executive Pension funds I looked at if you're interested.


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