crystalisation and drawdown

dunstonh

in the real world I am 46 years old with a 1mil plus pot, still working and paying in ~30k a year to stay below 100k earnings…. As such very likely I’ll exceed the max TfLs hence pondering the pros and cons of crustalising the lot 

At 46,  I wouldnt be too focused on it as the pension rules will almost certainly be different to what they are now.

I can certainly see an advantage in gradual crystallisation of a smaller point to allow continued tax free growth but as consensus above suggests once you hit the 1mil+ may as well crystallise the max to withdraw the fullest TfLs 

It leans towards that as long as capital gains tax and dividends tax is lower than the income tax you would pay on the excess over the limit.

And you have to compare like for like as you would be daft taking money out of investments at 55 to put into cash savings or premium bonds just to save tax (unless you plan early retirement and they form part of your retirement income strategy - i.e. the cash float/emergency fund)

Mistermeaner

MallyGirl said:

If you take the £250k out in one go you will almost inevitably end up paying 40% tax on the interest generated from wherever you put it. You can put £50k in premiums bonds and £20k a year in a S&S ISA but then in that first year you still have £180k to manage. Say you get 3% interest on that - £5,400 - then you are going to pay £2,160 tax and have to factor that £5k in when trying to stay under £100k

why would i pay 40% on that interest? isn't it only if that interest is on top of 50K of other earnings?

MallyGirl

Mistermeaner said:

Thanks all I think I got it now 

in the real world I am 46 years old with a 1mil plus pot, still working and paying in ~30k a year to stay below 100k earnings…. As such very likely I’ll exceed the max TfLs hence pondering the pros and cons of crustalising the lot 

this is why I assumed you would pay 40% tax on interest. Staying below £100k by contributing £30k a year puts you in 40% territory 

Mistermeaner

MallyGirl said:

Mistermeaner said:

Thanks all I think I got it now 

in the real world I am 46 years old with a 1mil plus pot, still working and paying in ~30k a year to stay below 100k earnings…. As such very likely I’ll exceed the max TfLs hence pondering the pros and cons of crustalising the lot 

this is why I assumed you would pay 40% tax on interest. Staying below £100k by contributing £30k a year puts you in 40% territory 

i would only be crystalising my pension if i stopped working

QrizB

MallyGirl said:

this is why I assumed you would pay 40% tax on interest. Staying below £100k by contributing £30k a year puts you in 40% territory 

Higher-rate tax on interest will be 42% soon, I think?

Mistermeaner said:

i would only be crystalising my pension if i stopped working

With a million-plus pot, you could still be a higher-ratetaxpayer in retirement.

zagfles

MallyGirl said:

If you take the £250k out in one go you will almost inevitably end up paying 40% tax on the interest generated from wherever you put it. You can put £50k in premiums bonds and £20k a year in a S&S ISA but then in that first year you still have £180k to manage. Say you get 3% interest on that - £5,400 - then you are going to pay £2,160 tax and have to factor that £5k in when trying to stay under £100k

Could use low coupon gilts while feeding into ISAs.