A
Avy
Guest
Hi everyone,
I've to write up a letter about retirement options but I'm kinda confusing myself by reading up too much about it!
So I'd really appreciate it if someone could help me
Employees - out of their compulsory contributions, they can get tax-free cash (1.5 x Final Salary) and they must purchase an annuity with the rest.
Out of their AVCs, they can put it towards a larger annuity, buy an ARF, draw out all the money and have it taxed as income. Where does tax-free cash come in here?
5% directors - they can treat both compulsory and AVCs as "AVCs", i.e. they can put all their money into an ARF if they so choose (incl the tax-free cash option which is 25%).
New finance bill 2006 changes:
Limit on the pension fund that is tax efficient - it is now €5m, there was never a cap before? Anything above this is taxed at 42%, so if it's €6m, then €1m gets taxed. Then you can take your tax-free cash, which is 25% of the fund or 1.5 x Final Salary (whichever is higher). This is subject to a max of €1.25m.
Finally, you are taxed on 3% of your ARF fund regardless of whether or not you draw money from it? If you draw 0% income, you are taxed on 3% of the fund at a rate of 20% or 42% (depending on your PAYE status?). If you draw 2% income, you are taxed on the 2% at your PAYE rate + PRSI, then 1% at PAYE. If you draw 4%, you are taxed on 4% at PAYE rate + PRSI, etc.
Is that right? Or have I got it totally all wrong? Thanks a million everyone, really appreciate it.
I've to write up a letter about retirement options but I'm kinda confusing myself by reading up too much about it!
So I'd really appreciate it if someone could help me
Employees - out of their compulsory contributions, they can get tax-free cash (1.5 x Final Salary) and they must purchase an annuity with the rest.
Out of their AVCs, they can put it towards a larger annuity, buy an ARF, draw out all the money and have it taxed as income. Where does tax-free cash come in here?
5% directors - they can treat both compulsory and AVCs as "AVCs", i.e. they can put all their money into an ARF if they so choose (incl the tax-free cash option which is 25%).
New finance bill 2006 changes:
Limit on the pension fund that is tax efficient - it is now €5m, there was never a cap before? Anything above this is taxed at 42%, so if it's €6m, then €1m gets taxed. Then you can take your tax-free cash, which is 25% of the fund or 1.5 x Final Salary (whichever is higher). This is subject to a max of €1.25m.
Finally, you are taxed on 3% of your ARF fund regardless of whether or not you draw money from it? If you draw 0% income, you are taxed on 3% of the fund at a rate of 20% or 42% (depending on your PAYE status?). If you draw 2% income, you are taxed on the 2% at your PAYE rate + PRSI, then 1% at PAYE. If you draw 4%, you are taxed on 4% at PAYE rate + PRSI, etc.
Is that right? Or have I got it totally all wrong? Thanks a million everyone, really appreciate it.