Your guide to ARF imputed distribution payments
QMY ARF Provider has sent me a letter about an “Imputed Distribution” payment for my fund – Can you explain why I am receiving this payment and what do I do next?
ATYPICALLY, around November and December every year ARF Providers / Insurance Companies will begin to process annual ‘Imputed Distribution’ payments to ARF holders.
Here are the most common questions answered in relation to imputed distribution payments
WHY AM I RECEIVING THIS PAYMENT? The Finance Act 2006 introduced a requirement on all Approved Retirement Funds (ARFs) that a minimum withdrawal based on age is to be taken from ARF plans each year. This is called the ‘imputed distribution payment’.
WHAT IS THE MINIMUM WITHDRAWAL AMOUNT? The current minimum withdrawal amount is 4% of the value of your funds on 1st December each year. This minimum of 4% per annum is payable 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 ARF 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 fund.
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.
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 imputed distribution 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 Provider has received from the Tax Office and what tax has been applied.
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.
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 credit 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.
For more information on Annual Retirement Funds, please contact Michael Coburn on 053 9170507 or email mcoburn@rda.ie