€400k cash built up in company. Put it all into a PRSA?

Personal details

Your age: 51
Your spouse's age: 51

Number and age of children: 1 adult working away. 2 in college 1st year and 2nd year


Income and expenditure
Annual gross income from employment or profession: 40,000
Annual gross income of spouse/partner: 85,000



Type of employment :self employed company director
Spouse : HSE


In general are you: saver
spouse : spender



Summary of Assets and Liabilities
Family home value: 340,000
Mortgage on family home: 0
1.
Buy to Let Property value: 360,000
Buy to let Mortgage: 90,000
Income 21,600

2.
Buy to Let Property value: 360,000
Buy to let Mortgage: 0
Income 21,600

3. (spouse)
Buy to Let Property value: 235,000
Buy to let Mortgage: 0
Income 10,200


cash : 30,000
Spouse 0

Shares: 2,000
Spouse: 40,000

Other borrowings – car loans/personal loans etc

Cars paid , no credit cards.


Pension information

Value of pension fund: 210,000. Pay in 30k PA
Spouse HSE Pension


Other information which might be relevant

Life insurance: no


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

I have €400,000 in the company that I should have done something about it ages ago. I recently met with a GFA through my accountant. He recommended a PRSA, to put the lot in . Also advised that it could close shortly as Revenue are making drastic changes to Prsas. HE recommended Zurich and Irish Life products.

My Question, is PRSA the best option ? what should I look out for, I would be looking for 1% management fees.

IS there a better option.

With so much global tension at the moment would I be better off putting it on a high interest return account (3) and drip feeding into a managed fund.

For reference, I reckon my current pension has given an annual yield of 6% up to the end of 2023.

cashisking said:

Value of pension fund: 210,000. Pay in 30k PA

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cashisking said:

Your age: 51

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cashisking said:

Annual gross income from employment or profession: 40,000

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cashisking said:

I have €400,000 in the company that I should have done something about it ages ago.

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Why did you build up €400k in a company?
You must have left profits in the company and paid tax on those profits.
If the company makes a pension contribution of €400k, the company will have a big loss for Corporation Tax purposes, which is of very little use to you. You can bring it back one year against last year's profits and you can carry the losses forward against future profits. But that will just result in you building up a cash pile again.

Stuffing it into a pension fund might be the best way to do it. But you will be taxed on it when you take it out as a pension.

You need advice on the best, most tax-efficient way to extract that money.
It is above my paygrade, but I would be asking a specialist tax advisor is it possible to extract it using Retirement Relief or Entrepreneurial Relief.
I don't think it is by the way, but you need to talk to a specialist about it.

But don't let the difficulty of addressing this now stop you doing something about it now or else you will have €800k in a few years and a bigger problem.

Brendan

What type of pension is your existing one?

What's the plan for the company?

Before year end, no requirement to spread forward tax relief on employer contribution of this size to PRSA.

You options are probably i) withdraw funds as salary and invest them personally, ii) leave funds in company, invest them in (maybe) life assurance investment, which avoids 20% surcharge, and extract proceeds through sale of company. A reduced rate of CGT (20%) may apply to certain companies/individuals. Certain business disposals may also be exempt from CGT under retirement relief. Exit tax @ 25% or iii) employer contribution to pension.

I reckon that, at first glance, the PRSA is the most tax efficient way of extracting the money.

If you wanted to get lower than 1% I'd say that you'd have to go the execution only route but that's not suitable for a lot of people. The 6% pa would suggest that you're cautious on investments but, yes, you could put the money in a cash fund and move it over time to a multi-asset/mixed asset managed fund.


Gerard

www.prsa.ie

You haven't given much detail on what you mean by having allowed the €400k to build up....

Are you sure that taking the full €400k out won't leave the company under pressure for free cash, or future working capital?

Is it possible that some of your children might come to work in the business part time, and earn an appropriate salary to maximise their tax breaks, over the next couple of years, so allow an element of the surplus funds to be transfered to them, in a tax efficient manner?

Pension contributions and Retirement reliefs are both valuable, so as others have said above, you need to get specialist advise, with regards to both.

Thanks for the feedback, some good content above, that I will follow up on .... by the sounds of it the PRSA is a good option so...

Brendan Burgess said:

Why did you build up €400k in a company?

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retained profits over a number of years. Have some lean years in the past so just let it pile up, a bit embarrassed for not attending to it earlier

GSheehy said:

What type of pension is your existing one?

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Its with New Ireland, not sure of the name of it.

GSheehy said:

What's the plan for the company?

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Business is going well, plenty of room for growth . I enjoy my work and the people I work with. Looking to hire an extra person this year, give me a little more time out of the office.

GSheehy said:

The 6% pa would suggest that you're cautious on investments

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I think I was a 5 or 6 on scale..

MrEarl said:

re you sure that taking the full €400k out won't leave the company under pressure for free cash, or future working capital?

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no, company is well funded for future growth...

MrEarl said:

Is it possible that some of your children might come to work in the business part time, and earn an appropriate salary to maximise their tax breaks, over the next couple of years, so allow an element of the surplus funds to be transfered to them, in a tax efficient manner?

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2 of them are working with me and maximise their income within tax threshold, also give them all for one vouchers

MrEarl said:

Pension contributions and Retirement reliefs are both valuable, so as others have said above, you need to get specialist advise, with regards to both

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Ill have that conversation this coming week .

cashisking said:

2 of them are working with me and maximise their income within tax threshold, also give them all for one vouchers

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Check this with the experts, but would you consider bringing them on board as proprietary directors, so you can really max out company contributions to their pensions at 100% of their salaries? Probably the most tax efficient way to get cash out of the business without you paying income tax (after you’ve maxed your own pension contributions) or them paying CAT on inheritance. Also make sure their salaries are high enough for them to max out their AVC limits too.

cashisking said:

retained profits over a number of years. Have some lean years in the past so just let it pile up,

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You need a strategy for this. Not just this cash pile but how to handle profits in the future.

You can take money out of the company in a good year and keep it in your own name as an investment.

Then if the company goes through a bad patch, you don't take salary out but live off your investments. (You take out enough each year to use up the 20% tax bands)

But leaving excess cash in the company is very inefficient. You are paying 12.5% Corporation Tax on the profits unnecessarily.

That is why you should sit down now with a tax specialist before the end of the year.

Brendan Burgess said:

Then if the company goes through a bad patch, you don't take salary out but live off your investments.

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And lose PRSI contributions, and in addition risk any current or future tax or other benefits dependent on continuous service as a salaried director?

I don't think so...

Brendan Burgess said:

(You take out enough each year to use up the 20% tax bands)

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This would address those issues as well.

I think Im going to go with Zurich Life PRSA Prisma Max fund. Annual management charge of 1% . I can avail of the PRSA BIK-exemption, mightn't get a chance to take a big lump out of company again , based off my humble salary... waiting on a consult with a tax specialist first.

Next step after that the is to consider what to do with future profits, maybe make children directors as above.....