Retirement planning looks different for self-employed individuals. Without an employer providing a pension scheme, sole traders and company directors must take the initiative, but with the right structures, they can unlock substantial tax relief.
Sole Traders – PRSAs & RACs
- Vehicle: PRSA or Retirement Annuity Contract (RAC).
- Contributions: Personal, subject to age-related limits (15%–40%) and the €115,000 income cap.
- Tax relief: Available on Income Tax only (not USC or PRSI).
Example – Patrick (Sole Trader, Age 52)
- Profits: €160,000.
- Limit: 35% × €115,000 = €40,250.
- Relief @ 40% = €16,100.
- Net cost of €40,250 pension = €24,150
Company Directors – Employer & Employee PRSAs
- Employer PRSA contributions (by your company): up to 100% of salary/emoluments without being treated as a Benefit-in-Kind (from Jan 2025).
- Employee contributions: Still allowed, subject to your age-based band and €115,000 limit.
- Corporation tax deduction for company contributions.
Example – Sarah (Director, Age 49)
- Salary: €120,000.
- Company pays €100,000 to PRSA → within 100% emoluments.
- No BIK; deductible for company. Sarah can also add personal contributions.
Retirement Benefits
- PRSA drawdown: Usually 25% lump sum + ARF/annuity.
- Lump sum tax treatment:
- First €200,000 tax-free.
- Next €300,000 @ 20%.
- Above €500,000 at marginal PAYE + USC.
Example – PRSA Fund €900,000
- Lump sum 25% = €225,000.
- €200,000 tax-free, €25,000 @ 20% = €5,000 tax.
- Balance to ARF/annuity.
Key Takeaway
Self-employed pensions combine high relief on contributions with flexible retirement benefits, but require proactive planning and awareness of limits.
