Individual retirement account (IRA) in Ireland

lchulo

Hi,

What is the equivalent of a U.S. Roth IRA in Ireland ?
I know you can open a PRSA but these are managed by financial companies.
I was looking for an account I could manage myself such as a Roth IRA in Vanguard or Fidelity.

I would welcome any suggestions.

Thanks.

Cheers.

antix80

Irish life do a "self invested fund" as an option in their personal and company pensions.

lchulo

Zurich too.
But I wanted to get away from the high management fees.

Maybe it's worth it.
I'll give them a call.

cronos

lchulo wrote: »

Zurich too.
But I wanted to get away from the high management fees.

Maybe it's worth it.
I'll give them a call.

Can you PM me to let me know how you get on. I'm interested in the FIRE (Financial Independence Retire Early) movement and hear about this a lot. I also hear about VTSAX, curious about them both and would prefer avoid fees if it's wasted money.

colm_c

Davy do a self managed PRSA and self managed executive pensions.

Fees are reasonable.

lchulo

That's really interesting if you have already an employer pension scheme (which is my case and most employees too).

I was looking to make post-taxed contribution, so I don't have to be worried to pay tax at retirement.
I don't know if in Ireland there is a post-taxed retirement account option (such as the Roth IRA in the U.S.)

I need to call a few financial companies and try to get that information.
If pre-taxed retirement account is the only option, at least that's still a good option.

cronos

lchulo wrote: »

That's really interesting if you have already an employer pension scheme (which is my case and most employees too).

I was looking to make post-taxed contribution, so I don't have to be worried to pay tax at retirement.
I don't know if in Ireland there is a post-taxed retirement account option (such as the Roth IRA in the U.S.)

I need to call a few financial companies and try to get that information.
If pre-taxed retirement account is the only option, at least that's still a good option.

Keep us in the loop. I currently match my company PRSA contribution but would like to consider additional options.

lchulo

So I contacted Irish life, they can only offer PRSA with AVC (Additional Voluntary Contributions).
Apparently you have a certain percentage of tax deduction based on your age.

I don't mind that too much because the percentage you pay now, you will not have to pay it at retirement.
Also you might be at a lower taxation bracket at retirement, so it's not a bad idea at all.

Apparently you cannot withdraw that money without incurring tax penalties.
So, definitely a no-go for me because I want to be able to sustain myself with monthly withdraw (no exceeding the total capital invested). That was my idea.

I called New Ireland (my current employer pension plan provider).
They sent me some information. But basically it's the same as Irish Life. They can only offer AVC.
There are some dodgy taxation though:

===
Irish tax on investment income/gains is only applied on withdrawals and on every 8-year anniversary.
The current rate of this exit tax is a flat rate of 41% (compared to the current capital gains tax rate of 33% and effective personal income tax rates up to 54%). Any exit tax due is calculated and deducted at source by the platform provider.
===

Again, it's a no-go to me.


I called Davy Select. They told me they were too busy at the moment to take my call.
They told me I could send them an email with the information I needed. I sent them an email with a brief description of my plan:

- Self Managed fund (index equities, gold, real estate, long term and short term bonds)
- Be able to withdraw up to the invested capital any time.
- Having tax-free profits.

They replied to me with a generic email with a link to their PRSA. That was a really lame business move (like they don't need new customers? )

I thought I would have a look at their plan but it looks like it's the same as above (cannot withdraw your money till retirement)
and they charge quite a lot.

===

Please find a copy of our Application Form (sorry I cannot post URL) which will enable you to set up your Davy Select Personal Retirement Savings Account (PRSA).

Please see attached our PRSA Factsheet (cannot post URL here) which gives a summary overview of some questions you may have.

Some things worth noting:

This type of pension structure is suitable if you’re either self-employed, in non-pensionable employment or you would like to make AVCs (additional voluntary contributions) separate to your employer related pension scheme

It's also a self-directed account where you trade yourself online. To find out more, click here
The Davy Select PRSA has a 0.75% annual dealing charge, inclusive of commission charges.

If you are trading in non-Irish/non-UK securities, overseas and custody charges apply per transaction (minimum 0.06% plus €25)
With effect from 1st October 2020 a negative interest rate of -0.65% variable per annum will apply to pension accounts for cash funds held on deposit with Bank of Ireland on behalf of Davy clients.

===


I'll take my decision on Monday after I talk to New Ireland.
But it sounds like I would have to go with investing myself through Etoro or Degiro
and let taxman defile me and have their 33-40% cut.

Then if I move to Spain that would be less painful (24% I believe).

That's kind of a bummer.

If you have better luck on your side, let me know.

Cheers.

colm_c

All those companies are selling the same thing a PRSA, a regulated product.

Each of the companies have slightly different ways of packaging it.

You should research what PRSA's are then if it fits what you need figure out which company sells the one with most benefit to you.

The big thing about PRSA is the money going in is tax free, so you get more for your money.

Gains are all tax free within the PRSA, you only get taxed on the way out like regular income tax.

When you go to retire you convert the PRSA into a pension product such as an ARF.

You don't use the PRSA as a bank account, it's for building up your pension in a tax efficient manner.

You can also move your PRSA to other providers over time.

IMO, if you are planning working in Ireland for a significant period of time it's worth having a pension, PRSA is a nice option if there is no pension through your place of work.

Stocks/investmemts are also good, but you need to know what you are doing and be prepared to take risk.

lchulo

My idea was to invest a big lump sum in a PRSA.
Because it's money already taxed, I believe I would get tax deduction (a percentage based on age).

Then let if grow tax free for 5 years.
After 5 years, I would do small withdraw monthly to sustain myself as in retire early (that's the whole point).

And at retirement I would pay regular income tax (the remaining percentage of what was already taxed).
But I would never have to pay capital gain taxes which is the big idea.

The only thing that does not fit my plan is not being able to withdraw small amounts any time without incurring taxes.

colm_c

lchulo wrote: »

My idea was to invest a big lump sum in a PRSA.
Because it's money already taxed, I believe I would get tax deduction (a percentage based on age).

Then let if grow tax free for 5 years.
After 5 years, I would do small withdraw monthly to sustain myself as in retire early (that's the whole point).

And at retirement I would pay regular income tax (the remaining percentage of what was already taxed).
But I would never have to pay capital gain taxes which is the big idea.

The only thing that does not fit my plan is not being able to withdraw small amounts any time without incurring taxes.

If you convert to an ARF when you retire, and keep the amount withdrawal under the tax bracket you would have very little/no tax to pay

antix80

lchulo wrote: »

.
There are some dodgy taxation though:

===
Irish tax on investment income/gains is only applied on withdrawals and on every 8-year anniversary.
The current rate of this exit tax is a flat rate of 41% (compared to the current capital gains tax rate of 33% and effective personal income tax rates up to 54%). Any exit tax due is calculated and deducted at source by the platform provider.
===

Again, it's a no-go to me.


I called Davy Select. They told me they were too busy at the moment to take my call.

The first thing you're referring to are life assurance investments. They're not pensions. They were meant to be a way for regular joes to save with tax free growth and a 20% exit tax but the government got greedy, hiked taxes and now they're probably not such a good investment.

As for Davy giving you a generic email.. Unless you're talking about a lot of money i believe most companies will not give you financial advice and will only give you generic information on their products. If you choose to invest, you'll have to sign a disclaimer saying you have not received advice from the company. You could even end up paying higher charges going direct.
You are much better off going to a broker familiar with what products suit your needs. Sure, they're sales people who receive commission but they'll give better advice than you'll find on a forum or dealing direct.

lchulo

antix80 wrote: »

You are much better off going to a broker familiar with what products suit your needs. Sure, they're sales people who receive commission but they'll give better advice than you'll find on a forum or dealing direct.

That's a good point. I might look for a financial advisor. But these guys usually sell you a product with good prospect and hidden management fees.

My main question is that I don't even know if such as product is available in Ireland.

I'm trying to get financial advice through my Employer's pension fund provider.
At least they have to be nice with a current customer.

Geuze

At retirement, you can draw down some of the PRSA as a tax-free lump sum.

The balance you put into an ARF.

You draw an income from the ARF.

dennyk

Out of curiosity, are you a US citizen, or have you just been browsing US-centric financial advice? In the former case, your investment options here will unfortunately be extremely limited if you want to avoid the onerous IRS reporting requirements (which may cost thousands per year in professional tax preparation work, and might not even be possible to fulfill with some products, since foreign funds often aren't legally required to provide you with all of the information that the IRS will be demanding from you, and it'll be you who pays the penalty for it if you can't get the required info) and the hefty penalty taxes associated with some types of non-US investments. Your PRSA lump sum when you do eventually retire might also be subject to US taxes, even though it is tax-free here.

If you are a US citizen, I'd recommend hiring a US tax professional with experience in expat tax matters to advise you on your options. Even if you plan to relinquish your US citizenship eventually, you must be fully US tax compliant for the years leading up to your relinquishment, or else you'll be charged an exit tax that'll come out to approximately half the fair market value of all of the assets that you own at the time.

lchulo

Hi,

I'm not a US citizen. I have just been browsing US-centric financial advice.
I was a fool to think there would be similar investments available in Ireland.

Are you saying that the people who invest in foreign funds (through Etoro for instance),
might not get the tax documents necessary? And they would incur penalties ?

If that's true, how do these guys trade? Only in Irish funds ?

antix80

I'm guessing accountants and brokers can make things happen if it's worth their while. But pensions are highly regulated in ireland due to the tax allowances so products and schemes have to be approved

dennyk

lchulo wrote: »

Hi,
Are you saying that the people who invest in foreign funds (through Etoro for instance),
might not get the tax documents necessary? And they would incur penalties ?

If that's true, how do these guys trade? Only in Irish funds ?

US citizens who purchase such non-US funds might not get the extensive and complex information about the fund that the US Internal Revenue Service requires holders of such foreign funds to submit with their tax returns, because the companies running those funds aren't under US jurisdiction and therefore have no legal obligation to provide that information to fund holders just because the IRS demands it. It is likely that the laws in their own jurisdiction might require them to provide some sort of similar information about the fund to investors, but that isn't guaranteed to cover all of the information that the IRS requires, so a US citizen holding a foreign fund might find themselves in the impossible situation of being required to report data they don't have and can't obtain to the IRS, and being penalized for their failure to report it.

There's no easy workaround for US citizens living abroad, unfortunately. The safest option is to only invest in US funds, but that can be legally and practically difficult; most US brokerages won't allow nonresident accounts to be created (and many even close existing accounts of customers who have moved away from the US), and both US and foreign laws often make it illegal for US brokers to sell shares of US mutual funds to non-US residents, even if they are also US citizens. Investing in US-domiciled ETFs used to be an option, but now in the EU that is no longer viable, as new EU regulations on the documentation that ETFs must make available to their shareholders has resulted in almost all US-domiciled ETFs being pulled from European brokers and marketplaces (because those fund providers don't want to go to the trouble or expense of complying with the KFID regulations in the EU, since they're really only interested in selling to US shareholders). Basically, US citizens living in Europe are pretty well ****ed when it comes to any kind of investing options without risking running afoul of US regulations.

Note that none of this applies to Irish citizens who are not also US citizens; Ireland has their own regulations and tax laws around foreign investments and funds, but they are far less onerous that the US regulatory regime, and unlike the US, Ireland does not generally require non-resident Irish citizens to submit tax returns or pay taxes on non-Irish income when they aren't tax resident in Ireland, so holding foreign investment funds as an Irish person living in another country isn't usually a problem.

lchulo

I'm not a U.S. citizen.

So, I called Irish life, Zurich, New Ireland and Davy Select.

They all say the same: I cannot withdraw the money before retirement.
So that statement alone is a no-go for my project (because the whole point is to sustain myself with dividends).

I will invest in Index funds on a trading platform (I don't know which one yet).
Zurich offers a managed fund where you pay taxes on capital gain every 8 years
or every time you withdraw the money.

So even though you are still paying taxes, it gives you 8 years to grow tax free profit.
The downside is that they charge you 1.5% management fees.

antix80

lchulo wrote: »

They all say the same: I cannot withdraw the money before retirement.

That's how Irish pensions work.

lchulo wrote: »

Zurich offers a managed fund where you pay taxes on capital gain every 8 years
or every time you withdraw the money.

is that exit tax (& deemed exit tax) you're referring to? Just be careful as losses on these investments cannot be offset against capital gains. And may not be relevant to non-residents.

I think at this stage you're best taking yourself to a financial adviser. No one here has any idea of your residency, or your plans or the amounts involved.