Retirement Annuity Contracts (RACs)

Think about tomorrow – today!

The personal options you could use to save for your retirement are:

  • Retirement Annuity Contracts (RACs)
  • Personal Retirement Savings Accounts (PRSAs)

Retirement Annuity Contracts (RACs)

This is the formal name for a defined contribution personal pension plan. The value of the benefits payable depends on the level of contributions, the investment achieved and the cost of buying benefits.

Who can take out an RAC?

You can take out an RAC if:

  • You have, or have at some stage, had ‘relevant earnings’. This is defined as earnings from an employment that is not being pensioned in a company arrangement.
  • You are a self employed trade or profession.

Additional Notes

  • If you are included in a company pension, only for a lump sum death in service benefit, you are deemed to be in non-pensionable employment and to have relevant earnings for the purposes of a RAC.
  • If you have more than one source of earnings, you can contribute to an RAC in respect of any income that is not pensioned in a company plan.
  • You can contribute to more than one RAC in any one tax-year.
  • You can contribute to an RAC and a PRSA in one tax-year.
  • Individuals who do not have taxable earnings (i.e. are unwaged ) cannot take out an RAC but can contribute to a PRSA.

Who can contribute to an RAC?

Usually it is the individual who takes out the RAC who makes the contributions. These contributions are usually deducted by direct debit on a monthly basis. Employer contributions are allowed but are taxed as benefit-in-kind, however the employee can claim income relief on these contributions as if s/he paid the amount themselves.

Can I claim Tax Relief on my contributions?

You are entitled to income tax relief on contributions paid to an RAC. This relief is normally claimed back from the Revenue in you annual tax return.

The maximum contribution rate as a percentage of total pay/net relevant earnings on which you can receive tax relief is illustrated below.

Ages % of Net Relevant Earnings

  • Under Age 30 15%
  • 30 – 39 20%
  • 40 – 49 25%
  • 50 – 54 30%
  • 55 – 59 35%
  • 60 & Over 40%

Notes: Contributions will also be relieved from the PRSI and the Health Levy, if you pay these charges. For tax purposes these contributions are limited to earnings up to a maximum of ?250,000 in any year.

For more information, please Contact Momentum Financial Services or telephone 0404 68572 to talk to one of our team.