Self Employed Pension
What are the limits for available Tax Relief?
Personal Pensions / PRSAs |
Age |
% of Earnings |
Under 30 years |
15% |
Age 30 - 39 |
20% |
Age 40 -49 |
25% |
Age 50 - 54 |
30% |
Age 55 |
35% |
Age 60 |
40% |
*NRE or Net Relevant Earnings = Relevant Earnings less any charges on income allowable as deductible for income tax purposes and less any losses or capital allowances. Earnings are capped at €262,382.
Take the following example:
Jim is age 40 and a sole trader for tax purposes. Jim’s net relevant earnings are €80,000. Jim is entitled to make a contribution of €20,000 or 25% of his net relevant earnings to a pension plan.
The net cost to Jim of making this contribution is €11,600* even though he is getting the benefit of making a €20,000 investment. This also has the effect of reducing his tax liability by €8,400. Jim prefers to keep more money in his own pocket by reducing his tax liability!
Level Annual Contribution |
€20,000 |
Income Tax Relief* |
(€8,200) |
Net Cost p.a. |
€11,800 |
Fund at age 65 at 6% p.a. investment growth |
€967,849 |
Fund at age 65 at 8% p.a. investment growth |
€1,288,502 |
Total Gross Contribution |
€500,000 |
Net Cost over 25 years |
€295,000 |
Tax Saving over 25 years |
€205,000 |
*assumes higher rate tax payer
In this example, by age 65, Jim would have a fund of €967,849 from a net cost of €295,000 based on 6% per annum investment growth or a fund of €1,288,502 based on 8% per annum investment growth.
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