Q – I recently retired at the age of 58 having just taken out an Approved Retirement Fund (ARF) and have been told I must take this “imputed distribution” of 4% of the fund each year. Is this true ? I don’t really want to touch the fund as I am still working, relatively solvent and want the fund to continue growing until I cannot work, at which point the money will come in handy. Peter – Clontarf Dublin 3
A – One of the rules of an ARF Peter requires that once over the age of 60 you are liable for income tax, PRSI ( if under age 66 ) and Universal Social Charge on the 4% of the fund as at 31st December each year – 5% once you hit the age of 71 and 6% if it is over € 2million. This yearly withdrawal or imputed distribution can be left untouched up to age 60 if you choose and the 4% can be retained in the fund until then, so you have two more years where you can leave your ARF untouched. Having taken out the ARF, it also means you took the 25% tax free lump sum – this tax free sum should always be taken – and there are a couple of points that you need to remember. If you die and there is a balance left in your ARF, it goes to your spouse firstly as if it’s their ARF, secondly to your children ( of both of you die ) but taxed at 30% and outside of inheritance, then if no spouse or children to your estate unlike an annuity ( which the insurance company keeps ) but also remember that in two years’ time when you take out your annual 4%, there will also be annual management charges ( c. 1.5% ) so if your fund does not grow by at least 5.5% from 2021, you are eventually going to run out of money….meaning you still have to manage your fund even in retirement. I would certainly recommend taking continuing expert and independent financial advice. You can make significant profits in an ARF whereas with an annuity you are tied to the fixed monthly income which never changes. Best wishes.