Save on taxes? Utilize your Pension Gap (in Dutch: jaarruimte)!
Everybody is constantly on the lookout for ways to save on taxes, but have you ever considered making an extra contribution to your pension? If this falls within your pension gap, you can deduct this contribution from your income tax return. The pension gap refers to the amount you can annually contribute to your pension while also being eligible for tax deduction in your income tax return. In this article, we’ll explain what the pension gap is, how to calculate it, and why it’s essential for tax savings.
Need assistance with calculations or advice?
Understanding the Pension Gap (in Dutch: jaarruimte)
The pension gap is the difference between the maximum amount you can save for your pension with tax benefits and the amount you’ve already accrued through your pension fund. It’s important to note that the pension gap depends on various factors, such as income and pension accumulation. As a result, the available pension gap can vary each year.
Calculating the pension gap: why it matters
Calculating the pension gap is not only crucial for determining the tax deduction but also for solid pension planning. By fully utilizing the pension gap, you enhance your pension fund and maximize tax advantages. The contributions you make to your pension become fully deductible, reducing your taxable income and potentially moving your income into a lower tax bracket.
How to calculate the Pension Gap
Calculating the pension gap involves several steps:
- Collect all data: Gather information about your pension accumulation so far, your taxable income, and any other pension plans you might have.
- Determine the pension shortfall: Subtract the amount you’ve already accrued in pension from the fiscal pension room. The difference is your pension shortfall.
- Calculate the pension gap: As of January 1, 2023, the pension gap is 30% of the pension shortfall. Be aware that there’s a maximum amount for the pension gap, which can vary annually.
- Assess the tax benefit: Calculate the tax benefit you can achieve by using the pension gap. This helps you understand how much you’ll actually receive back for your additional pension contribution.
For a detailed pension gap calculation, you can use the following formula:
Pension Gap = (Taxable Income – 13,646) x 30% – (6.27 x Factor A)
- Taxable income is your taxable income.
- Factor A represents the previous year’s Factor A, which is found in the Uniform Pension Overview (UPO) of the pension fund where you’re accruing your pension.
Need Assistance with calculations or advice?
Calculating the pension gap is a vital step for effective pension planning and to maximize all tax advantages. We’re here to help you calculate your pension gap so you can make the most of the tax benefits. If you’re seeking advice regarding deducting annuity premiums or the pension gap, we’re here to assist you. Fill out our contact form or call us at 020-2170120 to discuss the possibilities.
Start saving time with The TaxSavers
Speak directly with one of our tax advisors
We are happy to help! Please, contact us using the details below.