# Move savings into pension to maximise tax free growth / avoid 8 year deemed disposal & other taxes?



## SPC100 (4 Jan 2018)

My savings inside pension grow tax free.

My savings outside of my pension suffer from tax.

I plan to max my pension contributions over the coming years to get the maximum allowed marginal income tax relief.

I have been toying with idea of contributing several years worth of "tax relief" in advance, possibly by cashing in investments that suffer from the 8 year deemed disposal and exit taxes.

Allowing them to grow untaxed should give significant additional benefits over 20 years.

Thoughts?

Risks/Downsides
===========

I never earn the income in the future to claim the relief
Revenue change the rules, e.g. they don't allow me to carry forward my unclaimed relief, or they decide relief only applies at lower rate, or they make some other changes.
I can't access the funds before I retire


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## Marc (4 Jan 2018)

I’ve been looking into this as a planning option as well.

I think it makes a lot of sense unless you pay money in, then don’t receive income  tax relief, the investment falls in value and then you pay income tax in retirement at a punitive rate because you exceed the lifetime allowance.

If my parents gave me 300k today, unless I was already at 1.7m pension fund I think the optimum strategy would be a pension contribution for the full amount.

No cat on gift 33% tax saving
Income tax relief on contributions against income up to 40% relief
No personal tax on gains 33%/41% relief
Tax free lump sum up to €200k
Balance taxed at marginal rates of income tax (probably around 0 - 25% in retirement)

If I die before retirement my wife inherits the whole fund tax free.

There are so few tax planning options in Ireland, the income tax exemption in retirement is quite generous and many people have inadequate pension provision, then over funding a pension actually makes perfect sense for a lot of people (although not everyone)


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## Steven Barrett (5 Jan 2018)

Putting it into a pension works out better as long as you are paying tax at the lower rate when drawing down your pension. With a pension, after the lump sum is taken, the full amount is taxable on withdrawal. With investment, only growth is taxed.

Access is a big issue too. If you are only 40 now, there's going to be a lot of demands on money between now and age 60. You are going to pay tax on the money at some stage. Will an effort to delay that as long as you can be detrimental to your enjoyment of life in the meantime? 

And remember, we all pay 37% DIRT, PRSI and USC on our deposit savings EVERY YEAR. Deemed disposal every 8 years is nowhere near as bad as the DIRT regime but I don't think I have seen anyone giving out about that...


Steven
www.bluewaterfp.ie


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## Gordon Gekko (5 Jan 2018)

That does ignore the tax-free growth aspect.

Surely one is better off getting relief at 40%, parking the money where it can grow tax-free, and then paying tax at 40% on the drawdowns?


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## Steven Barrett (8 Jan 2018)

Gordon Gekko said:


> That does ignore the tax-free growth aspect.
> 
> Surely one is better off getting relief at 40%, parking the money where it can grow tax-free, and then paying tax at 40% on the drawdowns?



Investments are gross roll up, not tax on gains or dividends...just like a pension


Steven 
www.bluewaterfp.ie


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## Dan Murray (8 Jan 2018)

SBarrett said:


> Investments are gross roll up, not tax on gains or dividends...just like a pension



Hi Steven,

Is there not an exit tax, deemed or otherwise?

Regards,

Dan


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## mtk (8 Jan 2018)

I never earn the income in the future to claim the relief _This is biggest issue in my view - anything can happen redundancy/sickness/death_

Revenue change the rules, e.g. they don't allow me to carry forward my unclaimed relief, or they decide relief only applies at lower rate, or they make some other changes._ can happen very easily if say sinn fein got in . Also pension funds could be raided like in last recession  _

I can't access the funds before I retire - _sickness/divorce/need to move house/relative needs cash_


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## Dan Murray (8 Jan 2018)

mtk said:


> Revenue change the rules, e.g. they don't allow me to carry forward my unclaimed relief, or they decide relief only applies at lower rate, or they make some other changes._ can happen very easily if say sinn fein got in ._



Hi Mtk,

Surely, the government/revenue would never change the rules - that's as far-fetched as the government deciding to impose a levy on pension funds or double taxing you when you reach a certain fund size?  All this from the responsible parties!!

Your other points are also completely valid.


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## Gordon Gekko (8 Jan 2018)

SBarrett said:


> Investments are gross roll up, not tax on gains or dividends...just like a pension
> 
> 
> Steven
> www.bluewaterfp.ie



I don’t understand your post...


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## Steven Barrett (8 Jan 2018)

Dan Murray said:


> Hi Steven,
> 
> Is there not an exit tax, deemed or otherwise?
> 
> ...








Gordon Gekko said:


> I don’t understand your post...



Both pensions and investment funds accumulate tax free, with no CGT on shares sold within the fund or income tax on dividends. So I wasn't ignoring the tax free growth aspect of pensions. 

Under both scenarios, tax is paid at the end (or every 8 years for investments as the Revenue got fed up waiting for people to cash in their savings). If you pay income tax at the lower rate on your pension, it is more advantageous from a tax point of view to invest in pensions rather than investments. 

Steven
www.bluewaterfp.ie


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## Gordon Gekko (8 Jan 2018)

SBarrett said:


> Both pensions and investment funds accumulate tax free, with no CGT on shares sold within the fund or income tax on dividends. So I wasn't ignoring the tax free growth aspect of pensions.
> 
> Under both scenarios, tax is paid at the end (or every 8 years for investments as the Revenue got fed up waiting for people to cash in their savings). If you pay income tax at the lower rate on your pension, it is more advantageous from a tax point of view to invest in pensions rather than investments.
> 
> ...



Investments don’t accumulate tax-free!

At a minimum, there’s the 8 year rule; plus there are other issues such as the non-offset of losses.


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## Steven Barrett (9 Jan 2018)

Gordon Gekko said:


> Investments don’t accumulate tax-free!
> 
> At a minimum, there’s the 8 year rule; plus there are other issues such as the non-offset of losses.



They operate under gross roll up. Income and gains are allowed to build up tax free. If you bought stock directly, you would be taxed on dividends and gains each year.

Deemed disposal is paying a future tax due every 8 years. If you paid your deemed disposal after 8 years and sold at a lower price after 10 years, you can claim a refund from the revenue. 


Steven 
www.bluewaterfp.ie


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