I DON’T WANT TO TAKE MY ARF INCOME
Q – Recently retired at the age 61, I have just invested in an Approved Retirement Fund (ARF) and have been told I must take this “imputed distribution” of 4% of the fund each year. I don’t really want to touch the fund as I am still relatively solvent and want it to continue making as much profit as it can. Jimmy – Moate Co Offaly
A – One of the rules of an ARF Jimmy requires that you are liable for income tax, PRSI (up to age 66) and Universal Social Charge on 4% of the fund up to age 71 – 5% each year from this age. This monthly or yearly withdrawal or imputed distribution MUST be taken. Just to explain, when you retire, depending on the scheme, you can choose any of three ways of taking it after taking your 25% tax free lump sum..
- Annuity – basically a fixed deposit interest rate set at the time of retirement and that never changes. The insurance company gets to keep the fund when you pass away. Usually there is a minimum guarantee of 5 years’ payments. So the idea is to live as long as possible !
- Approved Retirement Fund (ARF) – more choice with your investment options plus you MUST take that 4% / 5% of the fund each year BUT when you die, the ARF goes to your wife first, then your family or estate.
- Cash – if invested in an ARF or even before you invest it you COULD cash the whole lot but you pay income tax, PRSI and USC on it all.
I would certainly recommend taking expert and independent financial advice before you finally decide on which is best for your needs. Email me for details.