Additional Voluntary Contributions (AVCs)

Are you thinking about boosting your retirement savings but wondering about the tax benefits? Good news – in Ireland, you can claim tax relief on pension contributions, and that includes Additional Voluntary Contributions (AVCs)!

Our AVC Calculator is a fantastic, free tool that helps you maximize the tax savings you could make by topping up your pension. Let's walk through how to use it effectively.

What is an AVC, and What Are The Potential Tax Benefits?

An Additional Voluntary Contribution (AVC) is exactly what it sounds like: extra payments you make into your pension alongside your regular contributions (i.e., payments you make to your pension through your employer via payroll).

The main reason to make AVCs is to enhance your retirement fund, but a massive bonus is the tax relief. In Ireland, you can claim tax back on your pension contributions at your marginal rate of tax (20% if you are earning below €44,000 or 40% if you are earning above this amount). This means a portion of what you contribute is effectively paid for by the taxman!

The Irish Tax Hub AVC Calculator

Here's a breakdown of the information used in the calculation and why it's important:

1. Age: This is crucial because there are age-related limits on the amount of tax-relieved pension contributions you can make each year. The older you are, the higher the percentage of your gross earnings you can contribute and still receive tax relief. The calculator automatically factors this into its calculations based on the Revenue limits.
2. Gross Earnings (€): This refers to your gross employment income. It's essentially the income you're paying tax on. The calculator needs this to determine how much of your AVCs will qualify for tax relief within the Revenue limits.
3. Pension Contributions (€): These are the pension contributions you made via payroll during the year. These are combined with any AVC payment when determining whether the total contributions are within the specified Revenue limits.

What the Calculator Tells You

Once you've entered your details, the calculator will provide you with a breakdown of:

• Maximum Tax-Relief Permitted: This shows you the total AVC payment you can make and still receive tax relief.
• Your Potential Tax Rebate: This is the exciting part! Input the AVC amount into our refund calculator and see exactly how much tax you could get back by making these AVCs. You can estimate the refund by applying your marginal tax rate (either 20% or 40%) to the AVC amount, however, our refund calculator will give you an accurate estimate based on your overall circumstances for the year.

Example Calculation: Seeing Your Tax Relief in Action!

Let's imagine a scenario and plug the following numbers into the calculator:

Scenario:

• Age: 35
• Gross Earnings (€): €50,000
• Pension Contributions (€) €2,000
• Output: Maximum AVC of €8,000

How the Calculator Processes This:

1. Age-Related Limit: For someone aged 35, Revenue allows tax relief on pension contributions up to 20% of their net relevant earnings.
2. Maximum contributions on which tax relief can be claimed: 20% of €50,000=€10,000
3. Current Contributions: You already contributed €2,000 to the pension scheme via payroll.
4. Remaining Tax-Relief Headroom: €10,000 (Maximum) - €2,000 (payroll contributions) = €8,000 remaining for tax-efficient contributions.

Your Potential Tax Rebate: Assuming you are a higher rate taxpayer (earning over the standard rate cut-off point, so paying 40% tax on this portion of your income): 8,000×40%=€3,200 If you were a standard rate taxpayer (paying 20% tax): €8,000×20%=€1,600

The Takeaway: By contributing an additional €8,000 to your pension, you could effectively reduce your tax bill by €3,200 (if you're a higher rate taxpayer) in that year! This means your net cost for that €8,000 contribution is actually only €4,800. That's a significant saving and a fantastic way to boost your retirement fund.

Why Use This Calculator?

• Visualize Your Savings: It makes the abstract concept of tax relief tangible, showing you real numbers.
• Plan Effectively: You can experiment with different AVC amounts via our refund calculator to see what's financially viable and how it impacts your tax position.
• Understand Revenue Limits: It helps you understand how your age and income affect the maximum amount of tax-relieved contributions you can make.
• Empower Your Pension Planning: By understanding the tax benefits, you're better equipped to make informed decisions about your retirement savings.

Ready to Boost Your Pension?

The Irish Tax Hub AVC calculator is a simple yet powerful tool to help you on your pension journey. Remember, while this calculator provides an excellent estimate, it's always a good idea to speak to a qualified financial advisor for personalized advice tailored to your specific circumstances. The relief can vary for self employed individuals or for certain types of pension schemes.

Contact us today if you would like to maximize your tax refund by claiming an AVC!