A Personal Retirement Savings Account (PRSA) is a highly beneficial and tax effective retirement plan which allows you to retire securely. If you are nearing retirement or are still building up your pension pot, it is essential to understand how to utilise your PRSA to guarantee a secure future.
Can I Access My PRSA Before Retirement?
One of the most beneficial aspects of a PRSA is that it allows you to access your retirement fund, before you retire. You can cash in your PRSA any time after the age of 60 regardless of whether you are retired, or due to retire in the near future. This can be seen as a huge plus if you plan on cutting back on work before officially retiring, or if you need additional income to cover unexpected expenses.
If you become ill you can access your PRSA at any age, which is extremely helpful. In addition, those willing to retire from employment early can start accessing their PRSA from age 50. This ensures that your retirement account will always be there whenever it's needed.
What Are PRSA Benefits Should You Die?
Should you die before you withdraw from the PRSA, the full value of your fund is passed to your estate. This ensures that your beneficiaries receive the full benefit of your retirement savings, giving peace of mind that your savings won’t go to waste.
The PRSA can also be integrated into the estate planning process.
What Are Retirement Benefit Options Of A PRSA?
On retirement the PRSA gives you several options for how you can use your savings. Firstly, you can take up to 25% of your PRSA fund as a tax-free lump sum, which can be an excellent way to cover any large expenses.
After taking the tax-free lump sum, there are various options left for what you can do with the remainder.
• Purchase an Annuity: An annuity guarantees a fixed income for life, which can provide peace of mind that you’ll never run out of money during retirement.
• Transfer the balance to an Approved Retirement Fund (ARF): An ARF offers flexibility, allowing you to draw down income as needed while keeping the balance invested.
• Keep it in a Vested PRSA: This option will keep your funds in the PRSA while offering income flexibility, similar to an ARF.
• Withdraw the Remaining Balance: You can choose to withdraw the balance as a taxable lump sum, though this may not always be tax-efficient.
Deciding which option to choose will depend on your retirement goals, risk tolerance, and income needs. It may be beneficial to speak with a financial advisor to determine the best option for you.
Income Flexibility and Withdrawal Requirements
Both ARFs and vested PRSAs allow for flexible withdrawals, which means you have complete control over the amount of income you choose to take in retirement. However, every ARF or vested PRSA holder must withdraw a minimum of 5% per annum once the holder reaches the age of 61. This ensures a constant flow of income while complying with tax
Are PRSA's Tax Efficient?
Another important advantage of the PRSA is its tax efficiency. Making a contribution to your PRSA provides tax relief which means there is less income tax to pay. There is also inbuilt tax relief in growing your PRSA, which protects your savings.
At retirement, all withdrawals made after the tax-free lump sum are taxable. However, if planned correctly you minimise tax payments on withdrawals especially if they are coordinated with other sources of income.
To get the most out of your PRSA, it’s important to plan carefully and think about your finances, retirement goals, and taxes. A PRSA gives you flexible ways to access your money and comes with great tax benefits. Working with a financial advisor can help you create a retirement plan that fits your needs and ensures you’re financially secure for the future.
Rob O'Neill
Citywide Financial
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