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Is an Executive pension like a 401k?

  • 30-11-2017 8:44am
    #1
    oghran
    Registered Users, Registered Users 2 Posts: 103 ✭✭


    I’m looking into setting up an executive pension with Davy, through my limited company. I’m also in the process of following a couple of US based financial books who always recommend maxing out your 401k.

    Would making the maximum contributions to my EPP (25% salary) be equivalent?

    Thanks.


Comments

  • #2
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,862 Mod ✭✭✭✭Henry Ford III


    401k would be more closely related to a PPP/PRSA.

    Executive pension will most likely be paid for by the employer (if it's your own company). Revenue set the limits but maximum funding is likely be much higher than the 25% of salary you've mentioned.

    Davy's should be giving you guidance on the optimal set up.


  • #3
    dennyk
    Registered Users, Registered Users 2 Posts: 1,785 ✭✭✭dennyk


    If it's a defined contribution occupational pension plan (where you contribute a certain percentage of your salary to the plan each pay period and it's invested into your choice of funds), then yes, for the purpose of financial planning it would be the same as a 401(k) plan in the US, more or less, being a tax-deferred retirement investment fund. Contributing your maximum tax-advantaged amount would make sense if you are looking to maximize your retirement savings.

    You may see recommendations in US-based advice to also invest in an IRA (Individual Retirement Account) in addition to a 401(k); that advice is because IRAs and 401(k)s have separate contribution limits in the US, which is not the case here (contributions towards occupational pensions, personal pensions, and PRSAs are all subject to the same total tax relief limit), so you don't need to worry about setting up a second pension/PRSA for that purpose if your occupational pension provides the investment fund options you're looking for.

    Edit: You may also see references to a "Roth IRA" or "Roth 401(k)", which is a retirement plan where you do not get any tax relief on your contributions, but the gains and eventual disbursements are not subject to income tax. There is no equivalent to a Roth retirement account in Ireland that I'm aware of, so again, not something you'd need to worry about.


  • #4
    oghran
    Registered Users, Registered Users 2 Posts: 103 ✭✭oghran


    Great, thanks for the help. I do see Roth IRAs quite a bit too, so good to know what they relate to here.

    I’ll need to chat with my accountant about my final decision but owning my own Ltd company, Davy recommended the EPP.

    Any reason that wouldn’t be a good option?


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