Personal Retirement Savings Account
What is PRSA?
A Personal Retirement Savings Account (PRSA) is a personal pension plan that you take out with an authorised PRSA provider. It is like an investment account that you use to save for your retirement. You can make regular contributions to your PRSA, and these are tax-deductible within certain limits.
A PRSA provides benefits at retirement based on the number of contributions paid and the investment returns earned on those contributions.
PRSAs are available to you regardless of your job or employment status. You can get a PRSA if you are a part-time or casual employee, a highly paid professional, self-employed, a homemaker, a carer, a job seeker, a contractor, an employer, an employee or a partner in a partnership.
PRSAs are flexible; you can increase, decrease or stop your contributions at any time without any charge or penalty. PRSAs are portable; you can carry your PRSA from job to job or transfer it to another PRSA provider without any charge or penalty.
If your employer does not provide you with access to an occupational pension scheme or if certain restrictions apply to their scheme, then you must be provided with access to a Standard Personal Retirement Savings Account (PRSA).
There are two types of PRSA contract
Pooled funds, also known as managed funds, these are collective investment schemes in which investors’ money is pooled to buy a portfolio of assets including Government bonds, deposits, property and stocks.
There are two types of PRSA contract
Putting your retirement fund to work
Your PRSA gives you the freedom and flexibility you need when you retire to put your fund to work throughout your retirement years – enabling you to actively manage your fund and gain total control of your assets. You can draw down benefits between ages 60 and 75 even if you are still working. You can also draw down benefits from your PRSA between ages 50 and 60 provided you have retired from your employment.
OPTION 1 – Retirement lump sum
You can choose to take up to 25% of your fund as a retirement lump sum and use the rest for option 2, 3, 4 or 5. Under current Revenue rules, the first €200,000 of any retirement lump sum is tax-free with any balance up to €500,000 subject to Income Tax at the standard rate. Any amount paid out in excess of €500,000 will be taxed at your marginal rate and will also be subject to PRSI and the Universal Social Charge. Any retirement lump sums taken on or after 7th December 2005 will count towards these limits.
OPTION 2 – Pension
You can buy a pension (also known as an annuity). This will provide you with a regular secure income, which will be paid for the rest of your life. Income from a pension is liable to income tax under the PAYE system. You may purchase your pension from any pension company. Therefore, you can maximise your retirement income by choosing the company that is offering the best pension rates when you retire. You can choose a pension that is payable for your lifetime only or one that continues to be paid to your dependent on your death. You can also choose a level pension or one that will increase every year.
OPTION 3 – Taxable lump sum*
You can take your fund as a cash sum subject to income tax, PRSI and USC where relevant.
OPTION 4 – Invest in an Approved Retirement Fund (ARF)*
You can choose to invest your fund in an ARF. An ARF allows you to invest your retirement fund in a range of investments managed by approved providers, including New Ireland. As you retain ownership of your retirement fund with an ARF, you can make withdrawals** from it when you need to. It is important to note that if high levels of withdrawals are made relative to any growth achieved there is a risk that your ARF fund could run out. You can use your ARF to purchase a pension at any time. Alternatively, you can keep your ARF fully invested to pass on to your dependents in the event of your death, in a very tax-efficient manner. In order to achieve good returns, it is likely that an ARF will invest at least partly in assets such as equities and property. While these assets have the potential to provide better returns in the long term than other asset types, it is important to note that the value of these assets can fall as well as rise, particularly in the short term. Further information on ARFs and AMRFs (Approved Minimum Retirement Funds) is available in our ‘Retirement Options’ booklet.
OPTION 5 – Partial benefits and contribution payment
You may choose to take partial benefits from your PRSA and continue to make PRSA contributions subject to benefits commencing and contributions ceasing at age 75 at the latest (restrictions apply to this option).
Which option is best for me?
You don’t have to choose which option suits you best now. The important thing is that you have built up enough of a fund to enable you to make these choices at retirement. As you approach retirement you should consider the following:
• How much money have you accumulated in your retirement fund?
• What will your financial needs be at retirement?
• The level of risk you want to take?
As retirement approaches, it is important to ensure that your asset choices match your planned options at retirement
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