Is it worth starting PRSA @ 54, below income tax threshold?

A

Allthatglitters

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Age : 54
Single parent (of teenager), BER B2 home owner, mortgage paid off December 2023

Part-time self employed / contractor, reducing to 10 hrs pw in coming months due to health/ageing parent's health.

In receipt of long-term Disability Allowance (reduced in line with income - will be paid in full when contractor hours reduce)

Medical costs approx €1.5k pa going forward (€8k in 2023) even with medical card

Savings : €5k emergency dental / medical / house / car fund
+€5.5k teenagers college fund
Both in Trade Republic with 4% interest
*2nd priority is to build emergency fund to €10k* I'll need to change 14yr old car within next few years

Pensions :
- will be entitled to full Irish State pension
- Have applied for UK additional NI contributions, should be eligible for 16 yrs past (mostly, if not all, at Class 2) Thanks @DannyBoyD !
*1st priority is paying UK NI contributions past & future to gain full UK pension *
- Inactive Irish Life Occupational pension ~€16k from the 1990's

Business Account has built up ~€18k - this covers contractor costs + will pay my UK NI lump sum + €500 Vol Contributions for Irish PRSI, + weekly drawings which will reduce to €150pw when my hours reduce.
With the possible exception of 2023, my income is below income tax threshold

*Question:* Is it worth starting a PRSA at 54yrs old, if I can only contribute approx €45 per week, AND when there's no income tax saving? Or is it better to save it in an account like TR @4% ?

I'm not sure if ill be able to continue to work until retirement age due to health. I certainly see myself being able to for another 4 or 5 yrs. Financially, obviously, I'd like to continue to 66.

Basically I've searched for typical returns on PRSA's but can't find any. I'm aware of the maintenance fees. With such a small amount to invest over so few years, I don't know if its worth it.

I'm risk averse as anything I've gained financially is very hard won (health), and frankly, I'd be devastated to lose it ! I'm also aware I'm losing through inflation, on a daily basis.

Thankyou in advance for any steer you can give me!
 
Have you figured out what your total income will be in retirement based on current progress? Will it be more or less than €18,000 per year from all sources? I think it will be more but I don't know what 16 years' UK pension gets you.

Assuming it's more then you'll be paying some tax at 20% in retirement (based on current rates and bands). So any additional income from a PRSA will be taxable at 20%. You get 25% of the PRSA fund back as a tax-free lump sum but that still leaves you paying 20% tax on 75% of the fund. That's an effective rate of 15% tax. If you're not going to get tax relief on contributions but will pay tax at 15% on the way out, I don't think it would be worthwhile.
 
Agree with Dave

Doesn't sound like a good idea if you are not going to be paying tax when you are retired.

Allthatglitters said:
Savings : €5k emergency dental / medical / house / car fund
+€5.5k teenagers college fund
Click to expand...

Allthatglitters said:
Business Account has built up ~€18k
Click to expand...

You should probably review this.

Money is Money. The €5k in the dental fund is the same as the €5k in the College fund.

Not sure about the Business Account. Is this a limited company? Are you taking it out tax-efficiently?

Brendan
 
Thankyou both. I hadn't considered the income tax payable on pensions, & yes I would be over the €18k threshold IF receiving full UK pension aswell.

I appreciate you highlighting this for me
 
Brendan Burgess said:
Agree with Dave

Doesn't sound like a good idea if you are not going to be paying tax when you are retired.





You should probably review this.

Money is Money. The €5k in the dental fund is the same as the €5k in the College fund.

Not sure about the Business Account. Is this a limited company? Are you taking it out tax-efficiently?

Brendan
Click to expand...
Yes, money is money, I totally agree. However it gives a parent comfort to know that part of savings is set aside for child's further education. I've had so many years of financial stress, could have lost the house back in the bad days of it, it brings a sense of ease knowing that at least I have a chunk set aside for 1st Yr of college costs & that I won't need to go back to that level of financial stress again. (Daughter will also work part-time through college years)

Re: Business Account- I'm a sole trader, not limited company. In 2024 I'll cover my costs, incl state pensions contributions, drawings of €150pw, & will have balance if approx €2500 - hence my query on PRSAs vs savings.

@Brendan Burgess I don't know what you mean by taking it out tax efficiently. Income has been so low, I've only turned a small profit in 2022 & 2023. 2023 is the only year I'm likely to pay tax. I probably wouldn't have had to pay tax if I had been able to make the 16yrs UK pension payment- but like many of us, I'm still waiting patiently for HMRC response
 
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