Increase AVC vs Increase Overpayments vs Prisma5

Fibbernacci said:
If I were you I would talk to ChatGPT about it. Give all the facts and assess what it spits out, ask questions about different scenarios etc. It's pretty good for this stuff.
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I have been doing this for a while with this sort of issue and many others but you really have to double check everything that it gives back as it can make very basic errors, I find that the results can be very biased based on previous interactions even when you try to get it to "think" more laterally, and eventually its memory can become full and the results suffer unless you purge it and start again. In short, use it with extreme caution.
 
There is nothing wrong with being in the higher income tax bracket in retirement. For me personally I would prefer to avoid it because:

1/ I don't believe my spouse and I will ever require more than 84k between us, once the house is paid off, to have a full and enjoyable life

2/ I am not enjoying working life and prefer to continue earning well in a job I don't like than to get paid less for a job with better W/L balance etc

3/ The value proposition in Ireland for higher earners vs tax liability is absolutely terrible.

Clearly in my case the optimal plan is to reach the Fire number as quickly as possible and retire on household income of 84k
 
AJAM said:
Yes it would be terrible in retirement if you had soooo much money that you were in the higher income tax bracket!!!!!!!!!!!!!!!!!!!!!!!!!
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The fear of having to pay 40% tax on a portion of my income after I stop working frequently keeps me awake at night. The horror....
 
mgriffin said:
pension will tip over to the 40%?
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And a budgetary change could at some stage reduce the income limit at which you start paying at 40% and then you'd be over it anyway. So that €84k or any future figure is not set in stone.
Better for people not to worry about these things and hope they get into the 40% bracket.
 
ChatGPT is great for making summaries of financial information but I've also found it can make statements that are wrong!
 
Fibbernacci said:
1/ I don't believe my spouse and I will ever require more than 84k between us, once the house is paid off, to have a full and enjoyable life
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Just to comment that the SRCOP for married couples with one income is just 53k, so couples with asymmetric pension arrangements are quite likely to tip into 40% territory. This is why I believe small contributions at 20% relief are still worthwhile to the lower earners pension, even just to take advantage of a second €2000 PAYE tax credit, an increased SRCOP, and of course a second 25% / up to 200k tax-free.
 
If the 2nd spouse was producing 10k of pension and me 53k, should we then aim to put assets generating 21k worth of income, like property/dividend stocks into their name to get to the 84k?
 
Fibbernacci said:
If the 2nd spouse was producing 10k of pension and me 53k, should we then aim to put assets generating 21k worth of income, like property/dividend stocks into their name to get to the 84k?
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I’m not sure here - they’re taxable but are they considered income? Would they qualify a couple for the second PAYE tax credit of €2000 if they’re not PAYE sources of income? (which I believe ARF’s and annuities are).

I transferred shares to my wife at one stage when they were dividend-paying and it didn’t work out how I hoped, but maybe another poster with a bit more experience in tax advice might clarify.
 
conor_mc said:
I’m not sure here - they’re taxable but are they considered income? Would they qualify a couple for the second PAYE tax credit of €2000 if they’re not PAYE sources of income?
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The 10k pension would allow full PAYE credits for the second spouse. (Providing that it is in their name) Pensions are included for earnings allowable for PAYE credits.

Rental and dividend income are not allowable for PAYE credits, but are allowable for personal credits.

Check out the link in this post.

Post in thread 'Dependent adult on contributory pension'

Dependent adult on contributory pension

My mother is included in my fathers pension as a dependent adult. Hers is non contributory, my father also has a small weekly private pension. Combined pensions they pay a small amount of tax, purely because we cant claim a paye tax credit against my mothers pension. Is there something we are...
www.askaboutmoney.com

3.1 Irish social welfare pensions
An Irish social welfare pension qualifies for the Employee Tax Credit even though the PAYE system of tax deduction is not directly applied to the pension
 
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That's interesting. So if my spouse is producing less than 42k in pension (but more than 10k) then that could be topped up with dividend income in her name in order for us to get 'good value' vis a vis the taxman
 
Fibbernacci said:
That's interesting. So if my spouse is producing less than 42k in pension (but more than 10k) then that could be topped up with dividend income in her name in order for us to get 'good value' vis a vis the taxman
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No, I think this was my mistake a few years ago.

Revenue Rates and Bands table

Note at bottom of table for married couples with two incomes:
Note: The increase in the rate band is capped at the lower of €35,000 or the income of the lower earner. This increase cannot be transferred between spouses or civil partners.

What I think happens is that dividends are not treated as income therefore don’t increase the SRCOP, so your spouse will still be taxed at 40% on them.

This is why I believe it’s more beneficial to hold these investments in a pension wrapper, even if contributions were only tax-relieved at 20%. You can still generate a decent wedge at 0% tax (25% of pot plus 10k pa). This may be preferable to maxing out a main earners AVC limits tax-relieved at 40%, but ultimately taxed on drawdown at 40% if only one pension income - admittedly, this is at the upper end of the pension pot size (probably 1.5m-plus). Also, it’s probably most beneficial if retiring early before COAP kicks in (COAP takes up the 10k pa tax-free) but still marginally tax-efficient to get a second 25% TFLS.
 
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Maximum srcop transferable between working couples is 9k.
So husband can have maximum 53k and wife can have minimum 35k.

So if husband earns more than 53k and the wife earns less than 35k they cannot make full use of maximum srcop of 88k

But If husband earns more than 53k and wife earns more than 35 K, they get full 88k srcop.

This is what is being explained by revenue.

If the wife has a pension of over 10k and dividend or rental earnings of 25 K + , and the husband earns more than 53k, the couple would get full srcop and both will get full personal and PAYE credits.

Or if they both earn at least 44k they get full srcop.

Rental and dividends are treated exactly the same for the srcop calculations. They are subject to income tax.
 
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Thanks for explaining @S class, so @Fibbernacci is correct and my post is incorrect. I’ll have to figure out where I had that problem a few years back, maybe it was to do with the transferability of SRCOP or something like that. It’s a bit hazy and I clearly don’t quite understand it well enough!
 
@conor_mc

Yes, I have got this confused a few times in previous posts.
Lately I find the best way to figure it out is to just think of it as 9k can be transferred.

This hasn't changed for many years, despite the yearly increases in the srcop. This is another stealth tax on lots of married couples.
 
mgriffin said:
Base repayments on that is €1269.84 but for the last year I have been overpaying to €1423.43.
Bank of Ireland have confirmed that we could overpay to €2016.24 per month. Assuming no change in interest rate come 2027 (one can hope?) at that rate would be mortgage free by 2039 or by the time I am 49
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Can I ask with this. BOI state you can only overpay 10% of your monthly repayments. How did you achieve a 2k repayment per month on a fixed rate?
 
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