The legislation is typically complex in the way it’s written. The mandatory drawdown kicks-in for the first full calendar year in which the person is at least 60.I understand that if I have an ARF with a retirement age of 60 that I , as the owner must draw down 4% at the age of 60, otherwise 4% of the value of the ARF will be taxed in any case , so better to draw it even if a person would prefer it to continue to grow and could manage without it for a year or two.
If a person was hypothetically , born on say , 12/6/1962 , would that mean it would make sense to draw this 4% on 12/6/22 , on his her 60th birthday or can this be left until 31/12/22 ?
Thanks in advance for any replies
Correct. But I think you are always better drawing down the full 4% (and having tax deducted at source) rather than just paying the tax equivalent without actually receiving the net. That’s because if you only pay the tax equivalent, then the net amount remains in the ARF (thus increasing the ARF value) and therefore future drawdowns are 4% of a slightly higher figure and equally the tax bill is higher.So, am i correct in saying. in reality, you could be 65, and still not have transferred from a DC plan into an ARF,
however, if you do transfer out of DC into an ARF(&AMRF if applicable)in that calendar year that you reached 65, you have to either
1)withdraw 4% of the ARF value in that calendar year, be taxed at source with Life/Pensions company, and have no further tax liabilities.
or
2)don’t withdraw anything from the ARF, and be faced with a tax bill, based on a notional 4% of the ARF fund value.
is that all correct ?
so after the tax free 25% drawdown, where does the 20% tax rate up to 500k come in?
Is the reduced tax rate only on lump sums before it is in a ARF?
Agreed. And that 20k left inside and it's future suffers a 2 p.c. tax 'wealth tax' pa. (Assuming marginal tax at 50%).It’s a really good question.
Say you’ve an ARF worth €1m and your marginal rate of tax is 50%.
Do you take out €40,000, net €20,000, or just pay €20,000 over to Revenue?
I think the salient point is that the €20k you leave in the ARF is subject to the drawdown again.
Agreed. And that 20k left inside and it's future suffers a 2 p.c. tax 'wealth tax' pa. (Assuming marginal tax at 50%).
We would need to model that vs shares, exit tax, and ETF regimes to answer the question. I guess a lot will depend on what assumptions you make for future market returns and how long you plan to invest for.
Thanks Marc. So are you saying the year that the ARF holder turns 61 ( we'll say born on 12/6/1962 and 61 on 12/6/2023) he/she should draw 1/12th of 4% of his/her ARF pot for each of the twelve months of 2023 . I don't understand what you mean by timing risk but I will take your learned advice on it. Thanks in advance.Where the ARF owner reaches 61 years of age or over during the tax year
We generally advise taking a monthly payment to reduce timing risk - see tedious discussion on another thread
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?