Are you ready for Your Future
The transfer of excess profits in your business to an executive pension arrangement is perhaps the most tax efficient way to move company profits into personal wealth and provide key future benefits for Company Directors, spouses and family members employed in the business.
Over the last year, we have seen a large increase in demand to explain how to transfer these excess profits into personal wealth and calculate the maximum amount the director can transfer. Everyone’s numbers are different so it is important to get specific advice on your situation. The earlier you start to plan the easier it is. We are now using a new calculator which is straightforward and quick and easy to use. This enables us to produce a comprehensive personalised client report for you within hours of your request.
Lets look at a Specific Example on how this works
John is age 40 (DOB; 01/04/1979) and married. He is a Director of his company and draws a salary of €36,000 per annum. He has been employed in his company since the 01/03/2014. After he pays his salary and other expenses, his company has excess profits of €35,000 per annum. He has no other pension benefits and would like to retire at age 65. How can John best approach funding a pension and what are the benefits of doing so?
Based on the above information, John’s company can make a monthly contribution of up to €2,272 from its excess profits into an Executive Pension. This will reduce the companies Corporation Tax bill each year by €3,408. There is no increase in John’s Income Tax Bill, PRSI Bill or USC Bill. In addition there is no Benefit in Kind on the employer pension contribution. Assuming John’s company continues to pay this amount into the Executive Pension each month for the next 25 years, and the contributions benefit from investment growth of 3% per annum after charges, John’s pension fund would be worth €1 million at age 65.
At age 65, John can take a Retirement Lump Sum of 25% of the Fund Value, which in this case would be €250,000, The first €200,000 of this Lump Sum would be Tax Free with the next €50,000 taxed at 20%. Therefore he would have €240,000 in his hand. The balance of his fund, ie: €750,000 could then be invested in an AMRF/ARF arrangement or alternatively an annuity can be purchased. This AMRF/ARF fund can then be drawn down as tax efficiently as possible in retirement, lets say at a rate of 5% per annum (ie: €37,500 per year). All income drawn from your pension at this stage would be taxed at you marginal rate at that time.
What to do next?
If you are interested in discovering your specific numbers and how this might benefit you (or your employed spouse) please do make contact with us by phone on 087-2902206 or alternatively by e-mail on ei.l1579267099aicna1579267099nifyo1579267099vaep@1579267099divad1579267099 .
Warning : These figures above are projections only. They are not a reliable guide to the future performance of your investment. The value of your investment may go down as well as up. You may get back less than you invest.
Warning : To keep your funding position up to date, you should review your salaries and fund value on an on-going basis. If your fund performs well it may be necessary to increase your salary in your final years before retirement.
David Peavoy BA, QFA, LIAP is the Owner of Peavoy Financial Planning whose practice is based in Office 5b, Portlaoise Enterprise Centre, Clonminam Business Park, Portlaoise, Co Laois.
David Peavoy T/A Peavoy Financial Planning is regulated by the Central Bank of Ireland
Disclaimer: All data and information provided within this blog is for information purposes only. It should not be taken as specific advice for your situation. Peavoy Financial Planning makes no representations as to the accuracy, completeness, or suitability of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries or damages arising from its use