Our new publication provides useful answers to commonly asked questions about Pension Plans.
When you pay into a Pension Plan, you are saving for your future and also on your next tax bill. It's like a direct and simple reduction in your tax bill.
Given the current situation of state pensions, it is advisable to have a supplementary income. This way, you won't depend entirely on your Social Security pension when you retire as you will receive an extra income to ensure your standard of living.
Funds withdrawn from a pension plan are taxed in personal income tax as earned income. Temporarily, funds withdrawn in the form of capital from shares on or prior to 12/31/2006 are entitled to a tax reduction of 40%, and tax will only be payable on the remaining 60%. For contingencies occurring after 1 January 2015, the reduction can be applied during the next two fiscal years. For contingencies occurring between 2011 and 2014, the term is 8 fiscal years. For contingencies occurring in or prior to 2010, the term expires on December 31, 2018.
The same tax is payable in the contingency of death as in any other contingency. Heirs or beneficiaries will pay tax on pension withdrawals in personal income tax (it is not subject to Inheritance Tax) as earned income, with the advantage that the tax payment can be deferred to a future date, as there is no obligation to withdraw the funds at the time of death, and they may remain in the plan indefinitely as beneficiaries.
Heirs or beneficiaries will also be able to apply the reduction of 40% on withdrawals of capital prior to December 31, 2006. They will be able to exercise this right for the two fiscal years after the death of the plan holder.