Beachcomber
Registered User
- Messages
- 14
Thanks Dave. Very informative.There's a second method of calculating your tax-free lump sum (aside from 25% of fund). It's based on your salary and service with the original employer where the retirement bond came from. Occasionally it works out that you can get a higher tax-free lump sum using this method. For example, if this calculation resulted in a tax-free lump sum of €100,000 or more, happy days - you take the lot out tax-free. It doesn't often work out so neatly, except in a minority of cases, but it's worth exploring just to make sure. Ask your broker to calculate your lump sum using the "salary and service" method.
Assuming that 25% is the better lump sum option for you and you take the other 75% as taxable cash, the 75% will be taxed as if you earned it, so you'll be hit at your marginal rates of Income Tax, USC and PRSI.
For this reason, it's advisable to leave withdrawing the 75% until you've actually retired from work. You can draw your 25% tax-free now and use an ARF to defer drawing anything from the remaining 75% until the year in which you turn 61.
I am in a similar situation to Beachcomber - on the 75% taxable cash piece, is it not the case that this excess (75%) lump sum above the tax free 25% is considered a ’standard chargeable amount‘ and therefore taxable at 20% if one chooses to liquidate the retirement bond on its entirety (see Revenue attachment below)?
Would appreciate any clarity you can give.
Understood - thanks; so the pot would have to be greater than 800k to avail of the 20% rate (up to 500k)?
Would you be able to provide more colour on the ‘salary and service’ methodology? For example, where the retirement bond emanates from a wound-up DC scheme and the employment with the company lasted 7.5 years with a final salary of c.100k.
Finally, does anyone have a view on the economics of actually paying the 52% marginal rate on the 75% encashment to pay down c.20 year mortgage debt that could have an interest rate as high as 4.5-5% once the existing fixed rate rolls off?
Excellent - thanks for thatBit of work involved in that. Revenue Pensions Manual sets out the formulae. You want Chapters 7 and 9.
c.18 years left on the mortgage (300k)…..will be paying a high rate of tax on my pensions in retirementHow many years left on the mortgage? Also - if you don't do this, are you likely to be paying tax at the high rate on your pensions in retirement anyway?
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