independent

Tuesday 25 September 2018

Save for retirement and reduce your income tax bill

Business Q&A

APersonal Pension Contributions or Additional Voluntary Contributions (AVC) are still the most efficient way to save for retirement and reduce your income tax bill. It is important you consider this before the next tax return deadline

The income tax return deadline is October 31st or November 14th if you are filing your tax return using the Revenue Online System. Business owners who are making the pension contribution must submit the claim for tax relief to the tax office prior to the deadline. This also has the double effect of reducing your preliminary Tax payment.

Pension contributions added to your Pension before the October / November deadlines are allowable for tax relief and can help you to lessen your 2016 tax liability. An individual can backdate a personal contribution paid in the current year to the immediate previous tax year for tax relief purposes.

You are currently entitled to claim tax relief at your marginal rate of income tax.

There are a number of limits and conditions that need to be considered. The most important being your income. The limits are set out below:

Aged attained Tax Relief Limit

during the year (% of Net

Relevant Earnings)

Less than 3015%

30 to 3920%

40-4925%

50-5430%

55-5935%

60 and over40%

You may only gain tax relief on your income up to €115,000. So for example, an individual aged 45 with an income of €50,000 per annum can gain tax relief on €50,000 x 25% = €12,500. However, the same individual, should he or she have an income of €150,000 can gain tax relief on maximum €115,000 x 25% = €28,750

This incentive to save for retirement is one which should certainly be considered as a means of reducing your tax bill but even more importantly as a tax efficient way in which to build up your pension pot for retirement.

In addition, before making your pension payment it is also very useful for you to obtain crucial information of what fees and charges are actually contained in your existing pension policies to ensure the tax relief you get now is not eaten up in fees and charges later on.

For further information on contributing to a pension a fund please contact Michael Coburn on 053 9170507 or email mcoburn@rda.ie

I am a self-employed sole trader and my Accountant has advised me that contributing to my Pension fund will help bring down my income tax liability. Can you please outline what my options are in this respect?

Wexford People

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