u.s. expat tax guide – ireland
What is a PRSA and why should American expats in Ireland consider it?
A Personal Retirement Savings Account (PRSA) is a flexible pension plan in Ireland that allows you to save for retirement.
For American expats living in Ireland, this account provides a structured way to contribute towards your retirement.
Who has to file an FBAR while living in Ireland?
You must file an FBAR if the combined value of all your foreign accounts, including bank accounts, mutual funds, and other financial accounts, exceeds US$10,000. This rule applies whether you live in the US or abroad, like in Ireland.
Even your pension accounts can count toward this total. For many people, including pensions and other accounts means they need to file an FBAR.
How does contributing to a PRSA benefit expats in Ireland?
When you contribute to a PRSA, you can make regular or lump-sum payments, which can be beneficial for managing your retirement savings over time.
These contributions may qualify for tax relief in Ireland, reducing your taxable income.
However, US citizens should note that these contributions must still be reported on your US tax return and that they do not receive the same tax advantages in the US as they do in Ireland.
Are PRSA distributions taxable in the US?
Yes, when you start withdrawing money from your PRSA—whether as a lump sum, an annuity, or through withdrawals from an ARF (Approved Retirement Fund) or AMRF (Approved Minimum Retirement Fund)—these distributions are considered taxable income in the US.
Who can open a PRSA, and is it suitable for everyone?
Almost anyone in Ireland can open a PRSA, including employees, self-employed individuals, and those not currently employed.
The flexibility and accessibility of PRSAs make them an attractive option for a wide range of people, particularly for those looking for a portable retirement savings plan that they can continue contributing to even if they change jobs or become self-employed.
What types of PRSAs are available and what are the costs?
There are two main types of PRSAs: Standard and Non-Standard.
- Standard PRSAs have capped fees, which means you won’t pay more than 5% of your contributions and 1% annually on the fund’s value.
- Non-Standard PRSAs offer more investment options but may come with higher or uncapped fees, which could impact your overall returns.
How much can you contribute to a PRSA and still benefit from tax relief?
While there’s no limit to how much you can contribute to your PRSA, the amount that qualifies for tax relief in Ireland is capped based on your age.
The older you are, the higher the percentage of your income that you can contribute tax-free. For example, if you’re under 30, you can contribute up to 15% of your income, but if you’re 60 or older, this increases to 40%.
When can you access your PRSA funds?
Typically, you can start taking money out of your PRSA when you reach 60.
However, under certain conditions, such as serious illness or specific job roles, you may be able to access your funds earlier, starting at age 50.
Your options for taking distributions include a lump sum, purchasing an annuity, or investing in an ARF or AMRF.
How does a PRSA compare with other retirement savings options in Ireland?
- Occupational Pension Schemes: These are employer-sponsored plans that often include contributions from both you and your employer. They can be less flexible if you frequently change jobs.
- Personal Pension Plans: These are typically used by the self-employed or those without access to an employer’s pension scheme. PRSAs are more versatile because they are available to everyone, regardless of employment status.
Is a PRSA the right choice for American expats?
For American expats, a PRSA can be a valuable part of retirement planning, offering flexibility and control over your savings.
However, because the US tax system requires you to report worldwide income, including PRSA contributions and distributions, it’s important to seek advice from a tax professional who understands both US and Irish tax laws.
