Converting Your Pension To An ISA
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- Опубліковано 26 вер 2024
- When it comes to pensions and ISAs, most people in my experience find ISAs much easier to understand and so would like to convert their pension to an ISA.
After all ISAs are free of Income and Capital Gains Tax. For most types of ISAs what you put in grows tax free and you don’t pay any tax when you make withdrawals. There are usually no restrictions in the age you can make withdrawals or on the amount you can withdraw.
Pensions, whilst a great savings product are much more complex. With different rules on access and tax consequences.
Unfortunately, it is not possible to transfer a pension into an ISA. However, there are ways and times you might want to consider moving money out of a pension and re-investing it back into an ISA.
How to convert your pension to an ISA:
#1 - Pension tax free lump sum
#2 - Pension income
What you need to consider before converting your pension to an ISA:
1.Pensions are a great Inheritance Tax planning tool.
2. Taking pension ‘income’ flexibly means being subject to the Money Purchase Annual Allowance.
3. You will trigger a Lifetime Allowance test.
So as always there are pros and cons but ultimately there are ways to convert a pension to an ISA if it is something you really wish to do. You just need to be clear on why you’re doing it and how it benefits you.
In order to understand exactly when you can comfortably retire you need to focus on 4 key areas.
Find out more in the 'The 10-Minute Retirement Plan' a free eBook that can be accessed here: rtsfinancialpl...
#pensiontransfer #pensiontoisa #pensionsandisas
Really useful video and helped me confirm ideas I had about moving money from pensions to ISA when my wife and I are able to, in the next few years. On retirement we're planning on investing a good chunk of our portfolio in high yield dividend etfs for a nice income, so ISA's seem to be the way to go for that. We'd keep the rest of our portfolio in growth stock funds and bonds. Still lots to investigate though :)
Worth updating now mmpa has increased and LTA is gone?
This was so helpful and just at the right time. If I have 2 separate banks both with ISA accounts... am I able to put £20k in each bank in the same Tax Year?.. or is that still limited to only one bank ISA ....a max of £20k per tax year per person.
You can only put in a max of £20k across all your ISAs in any one tax year.
On top of that, whilst you are allowed to have as many ISAs as you like built up over the years, you can only contribute to 1 cash ISA and 1 stocks and shares ISA each year
@@Banthah Thanks Chris, yes, I found this out after my message.. but thanks for making it clear for anyone else.
If you drawdown 5% of a £100k pension pot as a tax free lump sum leaving 20% TFLS remaining. If the pension remaining grows to £200K (🤩) and you decide to draw another £5k TFLS does your TFLS remaining drop to 15% or is the % remaining a higher value
When you decide to take out money from your pension in the form of a tax free cash lump sum you need to crystallise some funds. So if you wanted £5,000 as TFC you would 'crystallise' £20,000. £5,000 would be paid out tax free. You don't have to actually withdraw the other £15,000 (which is subject to tax) but it will go in to a segregated crystallised pot which remains invested. The other £80,000 is classed as uncrystallised and you can always take 25% of uncrystallised funds providing you have enough Lifetime Allowance.
Awesome video ..how abt if I just keep filling my SIPP and emp contribution and make sure it doesn't exceed my LTA before or during retirement?
Just remember that the pension Lifetime Allowance shouldn’t Always be avoided especially if your pension contributions are from your employer (free money). You don’t want to turn down a pay rise just because the pay rise is taxed more.
@@carlrobertsifa good point, I am planning to retire at 60 so SIPP and emp contribution is the way for me but wonder should I have contributed to s&S ISA too.
I have seen ppl obsessed with ISA ,they don't realise the power of SIPP , but then they might be thinking of retirement before 58.
Sipp falls outside your estate for inheritance tax an ISA doesn’t........ and so what if you break the lifetime alliance......
@@philboyce1582 I agree inheritance tax is a major advantage, I think we must have both . More like 70/30 contribution to sipp and ISA . Do a rough calculaion for sipp and see in do not exceed LTA or u can always take help of financial planners like RTS
@@philboyce1582 Correct!
If take you take money out of a pension (lump sum annually) would that still attract 25% tax free. Therefore could you take out £16,666 tax free - £4,166 (25% pension tax free) leaving £12,500 which is tax free under your annual allowance, subject to no other earnings. Is that correct?
Yes correct as long as your pension provider allows this method of withdrawal. Also Personal allowance is now £12,570.
Not quite. Your pension provider will assume you're going to withdraw that every month and deduct tax accordingly, which you will then have to reclaim at the end of the year. And that assumes you have no other income, in which case what are you going to live on?
Using your tax free lump sum is a terrible idea. You're just moving money from one tax free wrapper to another, whilst uselessly consuming your ISA allowance for anyone.