Top up your pension savings and get up to 40% tax back
Want to top up your pension with a lump sum, and get up to 40% tax back?
It’s the month of October and the dreaded dark and wet evenings are making a comeback again, which means the Tax Deadline of 31 October is also fast approaching. It’s the time of the year when you might hear of people claiming tax back on their pension payments and think – but how?
Pensions are one of the few ways that the Government will reward you for saving. They encourage us to make payments into pension plans as it will mean we will have a better standard of living during retirement. The way you claim tax relief or claim tax back is by making a top up payment into your existing pension or making a lump sum payment into a new pension or an Additional Voluntary Contribution (AVC). If you want to claim tax back for the 2016 tax year you will have to make this payment by 31 October 2017.
This is a final opportunity to reduce last year’s tax bill. If you don’t avail of this opportunity before the tax deadline, then you may have paid more tax than you need have paid for 2016 and you have missed your last chance to get this tax back or reduce the income tax you are about to pay.
Let’s look at an example, say you are in the marginal tax bracket (paying 40% income tax) and make a lump sum payment into your pension of €1,000:
- Pension pot topped up with €1,000
- Claim your tax back €400
- Actual cost to you €600
What does that mean for you?
Your pension savings get the full €1,000 top up, which is invested in your pension pot until you retire. This year, 2017, you get to claim back tax at your marginal tax rate of 40%. That’s €400 back in your pocket, right now. Which means it only actually cost you €600 to top up your pension by €1,000.
What do I do next?
Contact Pat on 087 245 6017 to discuss your options and see what the best route to make a payment into your pension is. It may be a case of setting up an Additional Voluntary Contributions (AVC), personal pension or PRSA depending on your specific circumstances.
This article does not constitute advice and is for informational purposes only.
Independent financial advice should be sought at all times.