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Additional Voluntary Contributions.

An Additional Voluntary Contribution (AVC) is a tax-efficient way to fund extra income when you retire. At retirement, you can use the money invested in an AVC to buy the additional pension benefits you want, subject to Revenue rules.

Benefits of an AVC

What makes an AVC different to other forms of savings is that because it is designed to save towards retirement, AVCs enjoy various tax reliefs such as

  • Maximize your potential tax-free lump sum at retirement.
  • Provide a higher pension income when you retire.
  • Tax Relief on contributions paid.
  • Tax Free Investment Growth.

How does tax relief work?

AVCs and PRSA AVCs qualify for tax relief at your marginal rate of tax. In short, this means that if you pay the top rate of tax (currently 40%), that for every€100 saved for retirement, you can enjoy a €40 tax refund now. If you are a 20% rate taxpayer, the refund is €20 for every €100 saved.

Limits to Tax Relief

Revenue allows generous amounts of income to be saved into pensions and enjoy tax relief. The limits increase as one approaches retirement:

Under age 3015% of Remuneration
Age 30 to 3920% of Remuneration
Age 40 to 4925% of Remuneration
Age 50 to 5430% of Remuneration
Age 55 to 5935% of Remuneration
Age 60 and over40% of Remuneration

Using AVCs to Buy back years with your employer

For those who have an amount built up in a group AVC or PRSA AVC, it is possible to transfer such monies to your employer to buy back years or notional service years.

What happens to AVC at retirement?

At retirement, AVCs will firstly be used to maximize the amount of tax-free cash that can be
taken. This is a different amount for everyone, but the max now is €200k If there is money left in your AVC and the hope and idea is that there would be there are options as to how you can access those funds. These can include.

  • Buy a pension or annuity
  • Take as a taxable lump sum.
  • Invest in an Approved Retirement Fund (ARF)

Again, there are rules and restrictions around these options. Your individual circumstances will influence which of these options may be most appropriate. If you are approaching retirement and have an AVC, speak to us to understand the advantages and disadvantages of each of these options.

Make sure you seek advice in plenty of time prior to your retirement to plan effectively.

We are experts on how Additional Voluntary Contributions (AVCs) can be used to effectively supplement your pension

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