Saving to prepare for your retirement… and at the same time reducing your income tax: this double promise is the main advantage of the retirement savings plan. But how do you know how much you are saving, fiscally speaking?
Putting money into a retirement savings plan allows you to reduce your taxable income. More precisely: it is a tax deduction. A notable tax advantage offered by the State in return for blocking this money until your retirement. Thus investing in a PER at the end of 2023 reduces your 2023 resources fiscally speaking… and ultimately ensures you reduce your 2024 tax payable on 2023 income. That’s the principle. Now for the details.
Who is interested in tax exemption with the PER?
Opening a PER with the aim of lowering your taxes means being taxable! This is obvious but, in theory, any banker or financial advisor is required to remind you of this before offering you such a product. If ever you don’t pay tax and you want to open a PER, it is better waive the tax deduction or choose another investment without blocking (life insurance, savings accounts, PEA, etc.).
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Taxes and PER: who saves how much?
The tax savings of the PER are not the same for everyone! As specified above, it is zero for a non-taxable household. Then the tax advantage increases according to your tax rate.
Or more specifically according to your marginal tax rate, or TMI. Qusaco? The income tax scale is proportional: the first bracket of any household’s income is taxed at 0%, the second bracket at 11%, then it climbs: 30%, 41% and finally 45% for those whose annual income per share exceeds 160,000 euros.
The TMI is therefore not your overall tax rate, but the one that applies higher share of your income. However, when you pay into a PER, the tax deduction reduces the upper part of your income. So, to gauge how much a retirement savings payment brings you, everything depends on the rate applied to this higher portion.
Example for a household in the 30% bracket
A single taxpayer without children declaring 40,000 euros of taxable income per year is included in the bracket 30%. He pours 1000 euros on a retirement savings plan: his taxable income increases to 39,000 euros thanks to this retirement savings payment. However, these 1000 euros should have been taxed at 30%, or 300 euros of tax. Result: thanks to this tax deduction of 1000 euros (for a payment of the same amount to their PER at the end of 2023), this single person saves 300 euros on the tax payable in 2024.
The tax saving is lower (theoretically 110 euros) if your TMI is 11%, and higher (410 or 450 euros) if it rises above 40%.
To remember. The tax deduction for retirement savings is primarily recommended for households in the upper brackets, from 30% to 45%.
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What impact on your retirement taxes?
Tax advantage on entry but taxation on exit. The tax deduction offered for PER payments is in reality a tax deferral. You reduce your income tax when you save, during your working life; but the Public Treasury makes up for it when you leave, most often when you retire.
Upon retirement, when you release your PER, the sums withdrawn from the plan will be subject to the classic income tax scale, such as earned income or retirement pensions. And whether you opt for capital outflow or life annuity.
With one nuance: the amounts saved are subject to the classic scale, and the gains from these amounts are subject to flat tax (12.8% income tax). Consequently, in the event of a capital outflow, it is not recommended to release everything at once: it is better stagger withdrawals over several years to avoid suddenly increasing taxes.
Does this taxation of exit render the tax advantage of the PER null and void? No if you are betting on a drop in your retirement income, and therefore on lower taxation.
100% theoretical illustration: if you pay 1000 euros at age 45, when your marginal tax rate is 30%, you save 300 euros upon entry… then you pay 110 euros when you withdraw this same sum in retirement, if your TMI has fallen to 11%. In the meantime, in theory, your PER will also have allowed you to grow your savings.
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