Obligatory ARF Payments (Imputed Distribution) Explained.

Typically, around November and December every year ARF Providers / Insurance Companies will begin to process annual ‘Imputed Distribution’ payments to ARF holders.
We were at Guardian Wealth have complied the most common questions ARF holders ask each year, but if your question is not listed please drop us an email and we might be able to help.

Question 1.

WHY AM I RECEIVING THIS PAYMENT?

The Finance Act 2006 introduced a requirement on all Approved Retirement Funds (ARFs) that a minimum withdrawal is to be taken from ARF plans each year. This is called the ‘imputed distribution payment’.

Question 2.

WHAT IS THE MINIMUM WITHDRAWAL AMOUNT?

The current minimum withdrawal amount is 4% of the value of your funds on 1st December each year. The current minimum withdrawal is 4% per annum of the value of your fund from the year you turn 61 (or 60 if your birthday is 1st January) and 5% from the year you turn 71 (or 70 if your birthday is 1st January).

If you have requested a higher amount previously, then the higher amount will continue to be paid.

If your total value is more than €2,000,000, the minimum withdrawal is 6%. The ARF Provider is responsible for making sure a withdrawal of 6% is taken from the total value of your ARF’s.

Question 3.

IS THIS WITHDRAWAL LIABLE FOR TAX?

Yes. Any payment from an ARF is treated like normal income. This means that you are liable to pay income tax, the Universal Social Charge (USC), PRSI (if applicable) and any other charges or levies due at the time of your payment.

Question 4.

WHAT RATE OF TAX HAVE I PAID / DO I PAY?

Insurance Companies are obliged to deduct income tax at the highest rate (currently 40%) on all imputed distribution payments. However, if you have sent your provider an up to date tax cert for this year it will be applied against your payment. When you get your ARF payment via cheque or into your bank account you will also receive a payslip. Your payslip will show what tax details your ARF pension Provider has received from the Tax Office and what tax has been applied. Guardian Wealth provides free inheritance tax advice also, for further details on this matter please find our contact details below.

Question 5.

WHY AM I PAYING PRSI?

Not everyone pays PRSI. If you are over 66 you are not liable to pay PRSI. PRSI must be deducted on all payments from an ARF / AMRF if you are under age 66. The rate of PRSI due is 4% of the overall payment amount.

Question 6.

WHY AM I PAYING USC?

The Universal Social Charge or USC, is calculated based on the full payment amount. Depending on your personal circumstances, individual rates may apply. However, ARF Providers need to be advised of these individual rates by the Tax Office in order to apply them. If the Provider has not been advised by the Tax
Office of the rates of USC to use, they will be forced to deduct it at a rate of 8%.

Full medical card holders and those over 70 may pay USC at reduced rates. However, this needs to be confirmed on your tax cert. If you are paying USC at a reduced rate and your total income for the year is €60,000 or more then you need to contact your local tax office in relation to this, as the reduced USC rate may not apply leaving an underpayment of USC.

Question 7.

I THINK I’VE PAID TOO MUCH TAX. HOW DO I CLAIM IT BACK?

If you think you’ve paid too much tax, you need to contact your local tax office. Your local tax office will require a copy of your P60 for the year the payment was made. They will then assess this payment in line with your personal tax circumstances and issue any refund if due.

Question 8.

WHEN WILL I RECEIVE MY P60?

Your ARF Provider will issue your P60 in February / March of the year following your payment.
We hope these questions and answers provide some clarity for you.

For more information contact us:

 

Wexford:   053 9110380

Dublin:   01 5267770

Email:  mcoburn@guardianwealth.ie