Cash in RAC Pension

TrimLad

I have a RAC pension which I paid into for almost 20 years. 2 years ago I stopped paying into this pension and set up a PRSA.

If I cash in the RAC pension will I be liable for tax since the pension is now worth less than the amount that I paid in.
If I have to pay tax how will this be calculate.

Kennie1

TrimLad wrote: »

I have a RAC pension which I paid into for almost 20 years. 2 years ago I stopped paying into this pension and set up a PRSA.

If I cash in the RAC pension will I be liable for tax since the pension is now worth less than the amount that I paid in.
If I have to pay tax how will this be calculate.

First and foremost you must be over 60 to cash in your RAC. You may transfer the value of your RAC to a PRSA regardless of your age. There are restrictions on what you can do with value of your total pension funds. These are the main options

1 If the value of your total pension funds are under 26665 you may take 25% tax free (6666euro) and the remainder (19999euro) you may take as taxable cash at your marginal tax rate.

2 If the fund is over this you can as before take 25% tax free but the remainder must be invested in a AMRF (63500 can't be cashed in before age 75)/ARF(the balance). Although the ARF can be taken as taxable cash at any time. AMRF must be bought if you have less than 12700pa guaranteed income eg Contributiary pension of 12000pa plus at least 700pa from another pension eg uk pension or a Pension Annuity. Rental income does not count nor does your salary!
Notes to above if you go down this road. The Government have asked the life companies what their thoughts are to raising the AMRF to 80,000 so maybe a good idea to claim pension fund before the budjet and they are also thinking of rising the Guaranteed Income Rate from 12700 to 18000. You should transfer the value of the RAC to the PRSA as this will avoid imputted distribution tax on ARF and having to take out a new contract

3 Take 25% tax free and buy a Pension Annuity (Guaranteed income for life) from a life company eg Irish Life, Standard Life etc..

You got tax relief on each premium you paid into the pension so regardless of the current value of the fund you must pay tax when you cash it in. As for how much tax you would be liable to is too complex of a area to try and cover.

Finally go speak to your Pension Advisor as he/she will go through the above options and you may opt to go for a combination of 2 and 3 above also he/she will advise you of the most tax efficent road to take.

TrimLad

Thanks Kennie1 for your detailed reply. Its not as simple as I hoped it would be, but I can now narrow down my options.