Taxes on defined contribution withdrawals from age 50

N

Ndiddy

Registered User
Messages
241
From age 50, if you have left service, you can pull out 25% of your funds and then the next amount up to 500k is taxed at 20%?
So if u have 3 DC plans that were never consolidated, is it 25% of the total value of all 3 plans only at one point or can you withdraw 25%of each plan at 3 different points in time?
And for the amounts taxed at 20%, does this have to be taken in one lump sum or is it 20%tax for all withdrawals up to 500k?
Thanks
 
Each plan has its own lump sum entitlement and each payment is tested against tax

so if at age 50 you retire a plan worth €200k you would get €50k tax free

Then at age 55 you retire a second plan for €800k you would get €200k of which €150 would be tax free and €50k would be taxed at 20%

I noticed on another post you said you had been consistently paying into pensions even when you were only getting 20% tax relief and that “it was the best decision you made”

You should jump up and down about that a bit more as the nay sayers on here are hard work sometimes

[broken link removed]


Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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YES!!! If we had waited to get to 40% tax bracket before adding to a pension/AVC ( which only happened last year in our 40s) we would have completely missed the amazing bull run the last 12 years which effectively quadrupled the amount we put in!!!
 
Ndiddy said:
we would have completely missed the amazing bull run the last 12 years which effectively quadrupled the amount we put in!!!
Click to expand...

No, you wouldn't have.

You are comparing contributing to a pension scheme with tearing up the money. Of course, you are better off contributing to a pension company than tearing up the money and the tax relief is not relevant.

If you had invested the money outside a pension scheme, it would still have quadrupled and now you could be getting 40% tax relief on the contributions.

Brendan
 
The only situation I can think of where you might mature them together is where a guaranteed annuity rate (GAR) applies to one of the pensions and it may be in your interest to take 25% from the aggregate funds so as to maximise the GAR.

Gerard

[broken link removed]
 
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Hi NRC
Put 100 into a pension fund when you are paying 20% tax and the fund doubles, you will have 200 in your pension fund.

Take it as salary and pay 20% tax , and you will have 80. It will double to 160 and you will pay 33% tax on the 80 and so you will have 134 in your hand. Now put 200 of your salary into your pension fund while you are getting 40% tax relief and it will cost you 120. So you are better off waiting until you are paying 40% tax.

It is always better though to put money into a pension fund than burning it.
If you will never earn enough to pay 40% tax , then you may be better off contributing at 20%.

The above example is based on a good return after pension fund charges. (But not quite as good as NDiddy's 300% over 12 years)

But usually the comparison is
"Do I contribute to pension fund while paying 20% tax or save up for the deposit on a house?"

And it's absolutely clear. Save up for the deposit or pay down your mortgage. Then max your contributions when you are paying 40% tax.

Brendan
 
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