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U.S. EXPAT TAX GUIDE – IRELAND

What does it mean to own a Personal Retirement Savings Account (PRSA) as an American in Ireland?

A Personal Retirement Savings Account (PRSA) is a long-term personal pension plan that allows you to make regular or lump sum contributions, which are then invested to provide you with income during retirement.

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How does a PRSA work?

A PRSA has three key areas:

  • Contributions: You can contribute any amount at any time, with contributions from you, your employer, or both. These contributions usually qualify for tax relief.
  • Management: Your PRSA is managed by a PRSA provider who invests your contributions based on your risk profile and retirement goals. The value of your investment can fluctuate, so regular reviews are recommended.
  • Benefits: Your PRSA provides benefits as a lump sum or regular income upon retirement. In certain circumstances, you can access benefits before retirement.

How is a PRSA taxed for US citizens in Ireland?

US citizens in Ireland must report PRSA contributions on their US tax return as part of their worldwide income. While PRSA contributions provide tax relief in Ireland, they do not receive similar benefits in the US. 

Distributions from a PRSA, whether as a lump sum, annuity, or withdrawals from an ARF/AMRF, are taxable as ordinary income in the US.

However, fully understanding these benefits requires meeting specific conditions and proper documentation. This is why it is extremely important to seek advice from a tax professional.

Who is eligible for a PRSA?

Almost anyone can open a PRSA, including employees, self-employed individuals, unemployed individuals, and homemakers.

Types of PRSAs

There are two types of PRSAs:

  • Standard PRSAs: Have a maximum charge of 5% on contributions and 1% per annum on the managed funds.
  • Non-Standard PRSAs: Have no charge limits but may offer a wider range of investment options.

How much can you contribute to a PRSA?

You can contribute as much as you like to your PRSA, but there are limits on the amount of contributions that qualify for tax relief based on your age:

  • Under 30: 15%
  • 30-39: 20%
  • 40-49: 25%
  • 50-54: 30%
  • 55-59: 35%
  • 60 or over: 40%

When can you start taking distributions from a PRSA?

The standard age to start taking benefits from a PRSA is 60, but under certain conditions, such as serious illness or specific professions, you can begin at age 50. 

Distributions can be taken as a lump sum, annuity, or by investing in an Approved Retirement Fund (ARF) or an Approved Minimum Retirement Fund (AMRF).

PRSA vs other retirement savings options in Ireland

  • Occupational Pension Schemes: Set up by employers, these often include employer contributions and may offer less flexibility than PRSAs, especially when switching jobs.
  • Personal Pension Plans: Mainly for self-employed individuals or employees not covered by Occupational Pension Schemes. PRSAs are accessible to everyone, including self-employed and homemakers.

Is a PRSA right for you?

  • Understand the Double Taxation Treaty: Utilize the treaty for tax savings.
  • Explore Irish Tax Incentives: Take advantage of incentives like the R&D Tax Credit.
  • Keep Your Tax Planning Up-To-Date: Regularly review your tax strategy.
  • Hire a Tax Advisor: A tax advisor familiar with Irish law can help you maximize benefits.
  • Leverage Ireland’s Strategic Location: Use Ireland as a gateway to the European market.
  • Consider the Benefits of a Holding Company Structure: A holding company can offer substantial tax benefits and access to an advantageous tax regime.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.

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