Maximise your pension to minimise your tax bill

If you’re not maximising your pension contributions to minimise your tax bills, you could be shooting yourself in the foot.

Firstly, you should be maximising your contributions anyway to provide yourself with an adequate pension income. But pension contributions also offer a means of paying less tax.

You can get Income Tax relief against earnings from your employment for your contributions (including Additional Voluntary Contributions (AVCs) to the following kinds of pension plans:

  • Company pension schemes
  • Personal Retirement Savings Accounts (PRSAs)
  • Personal Pension Plans
  • Certain life cover plans

There is no relief from Universal Social Charge (USC) or Pay Related Social Insurance (PRSI) for employee pension contributions.

It’s also worth remembering that, unlike deposits, investments in property or shares, pensions increase free of tax.

Limits for tax relief on pension contributions

Tax relief for employee pension contributions is subject to two main limits: an age-related earnings percentage limit and a total earnings limit.

For instance if you are a higher rate taxpayer (40% income tax), a €100 contribution to a pension will have a net cost to you of €60 – the remaining €40 would have been lost to income tax if you hadn’t made the contribution.

The age-related earnings percentage limits

  • under 30: 15%
  • 30-39: 20%
  • 40-49: 25%
  • 50-54: 30%
  • 55-59: 35%
  • 60 or over: 40%.

e.g. An employee who is 51 years of age and earns €50,000 can get tax relief on annual pension contributions up to €15,000.

The maximum amount of earnings taken into account for calculating tax relief is €115,000 per year.

If your employer contributes to a PRSA on your behalf, these contributions count against your maximum total contributions.

For more information on how to maximise your pension contributions to minimise your tax bills, get in touch today. At Gallivan Financial, our dedicated team of financial advisors are committed to offering you expert impartial advice on a whole host of topics. Simply call us on 064 6637393, email info@gallivanfinancial.ie or drop by our office today. We’ll be delighted to help.

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