Now more than ever, it’s vital we make the most of our money, and that includes our savings.
Despite deposit interest rates finally looking up, there’s no doubt that a pension is still the smartest, most tax efficient savings plan that will support the lifestyle you want to enjoy in your retirement.
After all, where else could you invest €10,000 – while parting with only €6000 – and be permitted to grow your investment tax free?
What makes a pension the cheapest form of saving?
An Additional Voluntary Contribution (AVC) is a lump sum contribution made to a pension fund, that is eligible for tax relief at your marginal rate of tax.
It helps you to build up your retirement pot and achieve tax back of up to 40%.
AVCs are treated the same as regular retirement savings contributions by Revenue, meaning you may be eligible for tax relief at your highest rate of tax.
The growth on your AVC pension investment is also tax free.
How does an additional voluntary contribution work?
As an example, if you are in the marginal tax bracket (paying 40% income tax) and want to top up your pension with an AVC of €1,000
- Pension pot topped up with €1,000
- Claim your tax back €400
- Actual cost to you €600
The maximum earnings limit for tax relief on pension contributions for 2022 is €115,000.
Please note that entitlement to tax relief is not automatically guaranteed. You should speak with your advisor first regarding your situation.
The deadline for an additional voluntary contribution is 31 October.
The deadline for making an AVC is 31 October; if you use the Revenue Online Service (ROS) to both file your tax returns and pay your taxes, your deadline is approximately two weeks after the 31 October deadline.
It is important to note that employee contributions are restricted by age and must be approved by Revenue.
There are a number of options for employees, the self-employed and for company directors when it comes to making an AVC.
To find out more and how an AVC can make a difference to your pension fund and your lifestyle in retirement, talk to an expert at Hennelly Finance today.
Give us a call on 091 670 123.