PRSA options at retirement

M

Mez!

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Let’s say I have a number of investments contained with my PRSA at retirement age that will provide a suitable annual income (after tax) from the dividends alone.

Upon retirement, do I have any options to leave the investments where they are and draw down the distributions only, or am I forced/required to sell them to invest in another retirement product?
 
On retirement you can take 25% as a lump sum (tax free up to €200,000). Once you do that you have 3 options:
- buy an annuity
- invest in an ARF
- leave it in the PRSA
If you opt for either of the last two, you have to draw down an income each year from the fund of a minimum of 4% of the fund value (up to age 70 and 5% after age 70). Under current rules, if you leave the 75% in the PRSA then you must transfer into an ARF by age 75. Any capital drawn down is taxed as income.
 
Using option 2 as an example and I have 50,000 in an ARF fund. If I wish to draw down 5% (= 2,500) in year 1 to supplement a pension of 30,000. Reading the revenue site, I would be due to pay the marginal rate of tax of 20% on all of it, ie 32,500@20% less normal tax credit. In addition I would be required to pay USC and PRSI the total also. The question I have is that the money in the ARF fund, via AVC's has already had USC and PRSI paid on it, so in effect double tax. The only relief on AVC's is Tax relief. Is my understanding correct. Thanks
 
You stop paying PRSI at age 66. Otherwise you are correct. Pensions are taxed under the PAYE system. You still get tax credits and your pension provider has an employer registration number that you give to the Revenue to have your tax credits applied to.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 


Very important point. If you don't transfer it to an ARF when by the time you are 75, you can't use it at all after age 75.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Are employer schemes similar ie can you leave the money there after retirement or you must take the funds?
 

You need to create an amrf of €63,500 for option 2 if no guaranteed income of €12,700 as i understand it.
What about option 3 - is it the same requirement ?
 
Last edited:
moneymakeover said:
Are employer schemes similar ie can you leave the money there after retirement or you must take the funds?
Click to expand...

Employer schemes and personal pensions are different. You have to put the money into an ARF or purchase an annuity after you take the tax free cash. Only in PRSA's can you leave the remainder in the policy...but even then, it has to be transferred to an ARF/ annuity by age 75.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I have a non standard PRSA which I recently put into cash and will be 60 in 12 months.
I hope to take my 25% tax free lump sum at 60.
Is it possible to purchase a property now with say 50% to 70% of total fund value? I would plan to keep the property for 7 to 10 years.
 

Yes, you can buy a property through a self directed PRSA or wait until you retire and buy it through your ARF.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Unless you have a guaranteed pension income in excess of €12,800 you must invest the first €63,500 into an AMRF where it must remain until age 75 or when your guaranteed pension income exceeds €12,800 if earlier.
 
Thanks Conan.
So if I put 63500 in an AMRF can I purchase property in my existing non standard PRSA without the use of an ARF?
 
If you want to use a PRSA to buy a property now - before you retire, you can set up a Self-Invested PRSA and do that. Then next year, when you want to retire, if there's enough cash or liquid investments to pay your 25% lump sum, you can withdraw the lump sum and leave the property in the PRSA. The PRSA then becomes a Vested PRSA, i.e. a post-retirement vehicle. In effect, a Vested PRSA is similar to having an AMRF and an ARF, in that the same rules apply regarding withdrawals. Or, after taking your 25% tax-free lump sum, you can set up a Self-Invested AMRF and ARF and transfer the property "in specie" into them, without having to sell the property.
 
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