Retirement income is treated like normal income which meaning income tax must be paid on it. This includes annuities, withdrawals from ARF’s,AMRF’s, taxable cash payments, trivial pension payments, dividend income, and rental income. This will be subject to income tax at your marginal rate, PRSI, and USC.
There are however some exceptions with tax reliefs for older people.
When you reach 65,it is possible that you may be exempt from paying income tax altogether if you elect to avail of the exemption limit.
The threshold allows a single person to earn up to €18,000 or a married couple to earn up to €36,000 without being subject to income tax. This amount can be increased if you still have dependent children (including those in universities). You will still be subject to USC at the full rate while availing of the exemption limit.
You will not qualify for the exemption limit if your earnings are in excess of the rates stated above however you will be entitled to an age-related credit of €245 per year for a single person (double for a married couple). This credit will be applied when you or your spouse/ civil partner reaches the age of 65.
When you reach 66, you’ll also stop paying PRSI giving you another saving.
This saving may be determined that earlier if you draw down from a private occupational pension as some private pensions are not subject to PRSI regardless of age. There is also a reduction in USC when you turn 70.