Spend ISA savings while maxing pension contributions?
Discussion
Currently in my mid 50s and hoping to retire at 60. With 50k in ISAs I'm wondering if it makes sense to ramp up contributions to my workplace pension pot (defined contribution) and use the ISA savings towards living expenses instead?
My thinking being that the pension contributions would be boosted by the 21% income tax rate (Scotland), and I don't expect to ever be a higher rate tax payer in retirement, though would enjoy the 25% tax free element from my pension.
Have I thought this through properly? Thanks for any thoughts
My thinking being that the pension contributions would be boosted by the 21% income tax rate (Scotland), and I don't expect to ever be a higher rate tax payer in retirement, though would enjoy the 25% tax free element from my pension.
Have I thought this through properly? Thanks for any thoughts
Halitosis said:
Currently in my mid 50s and hoping to retire at 60. With 50k in ISAs I'm wondering if it makes sense to ramp up contributions to my workplace pension pot (defined contribution) and use the ISA savings towards living expenses instead?
My thinking being that the pension contributions would be boosted by the 21% income tax rate (Scotland), and I don't expect to ever be a higher rate tax payer in retirement, though would enjoy the 25% tax free element from my pension.
Have I thought this through properly? Thanks for any thoughts
Once it is in a pension pot it's harder to get it out, I would always have some funds that are more liquid so an Isa serves that purpose, with some in actual cash.My thinking being that the pension contributions would be boosted by the 21% income tax rate (Scotland), and I don't expect to ever be a higher rate tax payer in retirement, though would enjoy the 25% tax free element from my pension.
Have I thought this through properly? Thanks for any thoughts
Yes it makes sense.
As above, keep a little in reserve. but once over 55 you can withdraw the 25% tax free whenever you want & carry on paying in as long as you don't touch the rest - so there's your emergency fund.
Also if you're retiring at 60, you will have 7 years or so where you can use up your regular tax free entitlement as well before even starting paying tax.
As above, keep a little in reserve. but once over 55 you can withdraw the 25% tax free whenever you want & carry on paying in as long as you don't touch the rest - so there's your emergency fund.
Also if you're retiring at 60, you will have 7 years or so where you can use up your regular tax free entitlement as well before even starting paying tax.
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Edited by devaneeiya on Monday 31st January 16:57
Carbon Sasquatch said:
As above, keep a little in reserve. but once over 55 you can withdraw the 25% tax free whenever you want & carry on paying in as long as you don't touch the rest - so there's your emergency fund.
I thought that once you crystallize any of your pension, your annual limit drops from £40k to £4k?This is to stop the loophole of taking 25%, and putting it straight back in to get double tax relief.
alock said:
Carbon Sasquatch said:
As above, keep a little in reserve. but once over 55 you can withdraw the 25% tax free whenever you want & carry on paying in as long as you don't touch the rest - so there's your emergency fund.
I thought that once you crystallize any of your pension, your annual limit drops from £40k to £4k?This is to stop the loophole of taking 25%, and putting it straight back in to get double tax relief.
One source - last sentence - https://www.youinvest.co.uk/pensions-and-retiremen...
You are correct that recycling is not allowed though, but those rules are somewhat vague.
Carbon Sasquatch said:
alock said:
Carbon Sasquatch said:
As above, keep a little in reserve. but once over 55 you can withdraw the 25% tax free whenever you want & carry on paying in as long as you don't touch the rest - so there's your emergency fund.
I thought that once you crystallize any of your pension, your annual limit drops from £40k to £4k?This is to stop the loophole of taking 25%, and putting it straight back in to get double tax relief.
One source - last sentence - https://www.youinvest.co.uk/pensions-and-retiremen...
You are correct that recycling is not allowed though, but those rules are somewhat vague.
bogie said:
I think you need to keep working part time and have another source of income, then you can live off the tax free cash and put all the income back into the pension, you cant directly recycle....which is obviously what you are doing if your only source of income is the money you just took from pension.
Serious question - could your Mrs start a company with ridiculous terms and conditions that allowed you as an employee of said company to pay it all back into a pension? Whatsmyname said:
Serious question - could your Mrs start a company with ridiculous terms and conditions that allowed you as an employee of said company to pay it all back into a pension?
Said company would have to pay you - so somehow you have to get the money into it & any associated cost/tax in doing that.It only really makes any sense if you are a genuine employee - live off your tax free sum & salary sacrifice 100% (or as much as possible). Ideally start the salary sacrifice pattern some time before taking the lump sum.
nickfrog said:
True. For starters you can legally recycle £2,880 per year per person even with £0 income. And HMRC will top up to £3,600.
They will, but they will also tax it again on the way out. 25% is tax free, but the rest will depend on what other income you have and will be charged at your marginal rate.Carbon Sasquatch said:
nickfrog said:
True. For starters you can legally recycle £2,880 per year per person even with £0 income. And HMRC will top up to £3,600.
They will, but they will also tax it again on the way out. 25% is tax free, but the rest will depend on what other income you have and will be charged at your marginal rate.
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