Alex, aged 64, has a vested PRSA with a ring-fenced part of €63,500 and a non-ring fenced part of €100,000 as at 30 November 2020. What minimum withdrawal, before tax, must he take from his PRSA before the end of 2020 to avoid an imputed distribution?

Alex, aged 64, has a vested PRSA with a ring-fenced part of €63,500 and a non-ring fenced part of €100,000 as at 30 November 2020. What minimum withdrawal, before tax, must he take from his PRSA before the end of 2020 to avoid an imputed distribution?

• A. €2,540
• B. €4,000
• C. €6,540
• D. €8,175

Answer: (B)

The key idea is to avoid an imputed distribution on a PRSA with mixed ring-fenced and non-ring-fenced funds. An imputed distribution can arise if you don’t take a required minimum withdrawal in a year once you’re of an age where withdrawals are expected. Importantly, the minimum withdrawal to avoid this imputed distribution applies to the non-ring-fenced portion of the PRSA only, not to the ring-fenced portion. Here, the non-ring-fenced part is €100,000. The minimum withdrawal is 4% of that amount: 0.04 × 100,000 = €4,000. Therefore, to avoid an imputed distribution, he must withdraw at least €4,000 before tax from his PRSA in 2020. The ring-fenced portion (€63,500) does not change this minimum calculation. Why the other figures don’t fit: 6,540 equals 4% of the total fund (ring-fenced plus non-ring-fenced), which isn’t the rule. 2,540 is 4% of the ring-fenced portion, which isn’t the basis for avoiding imputed distribution. 8,175 is 5% of the total, also not the rule.

The key idea is to avoid an imputed distribution on a PRSA with mixed ring-fenced and non-ring-fenced funds. An imputed distribution can arise if you don’t take a required minimum withdrawal in a year once you’re of an age where withdrawals are expected. Importantly, the minimum withdrawal to avoid this imputed distribution applies to the non-ring-fenced portion of the PRSA only, not to the ring-fenced portion.

Here, the non-ring-fenced part is €100,000. The minimum withdrawal is 4% of that amount: 0.04 × 100,000 = €4,000. Therefore, to avoid an imputed distribution, he must withdraw at least €4,000 before tax from his PRSA in 2020. The ring-fenced portion (€63,500) does not change this minimum calculation.

Why the other figures don’t fit: 6,540 equals 4% of the total fund (ring-fenced plus non-ring-fenced), which isn’t the rule. 2,540 is 4% of the ring-fenced portion, which isn’t the basis for avoiding imputed distribution. 8,175 is 5% of the total, also not the rule.