Tip 19: Year-End Pension Tax Break

Save Taxes Before It’s Too Late

Time is running out to slash your taxes! December is your last chance to contribute to your pension using annual and reserve allowances. Every euro you contribute before year-end could save you up to 49.5% on taxes. Don’t miss this huge opportunity to grow your retirement savings tax-free.

The clock is ticking! Did you know you can reduce your taxable income and save big on your taxes this year by contributing to your pension before December 31? In the Netherlands, the annual allowance (jaarruimte) and reserve allowance (reserveringsruimte) are tax-advantaged ways to save for your retirement—and time is running out to take advantage of them for 2024.

Every euro you contribute this month can save you up to 49.5% in taxes. Plus, your pension savings won’t be subject to the Box 3 wealth tax, making it an incredibly smart way to grow your retirement fund. Ready to learn how it works? Let’s break it down!

The annual allowance is the amount you’re allowed to contribute to your pension each year, tax-free. It’s based on your income and how much pension you’ve already built up. Contributing before December 31 means you can still reduce your taxable income for this year—resulting in a direct tax refund or reduction.

Here’s the formula for determining your contribution room:

1. Find your pensionable income: Subtract the AOW franchise (a fixed amount set by the government) from your gross annual income.
2. Use this formula:

• • Annual Allowance = (13.3% of pensionable income) – (6.27 × Factor A)
    Factor A: Found on your Uniform Pension Overview (UPO), it shows how much pension you’ve built up via an employer.
  • Example Calculation:
    Gross income: €60,000
    AOW franchise: €17,000
    Pensionable income: €43,000
    Factor A: €2,000
    Annual Allowance = (13.3% of €43,000) – (6.27 × €2,000) = €3,991

In this example, you could still deposit up to €3,991 tax-free this year.

Year-End Pension Tax Break in a Nutshell

• Act now to contribute before December 31 and save taxes this year.

• Use annual and reserve allowances to maximize your contribution.

• Save up to 49.5% in taxes and avoid Box 3 wealth tax.

• Open a pension account with a trusted provider today.

• Consult a pension advisor to make the most of your pension strategy.

The reserve allowance lets you catch up on unused annual allowance from the past seven years. It’s perfect if you missed out on making contributions in previous years.

Example of Reserve Allowance

If you didn’t contribute your full allowance over the last five years and have €10,000 in unused contributions, you can still deposit that amount today—saving nearly €5,000 in taxes if you’re in the top tax bracket.

Immediate Tax Savings
Contributions made before December 31 reduce your taxable income for this year. For example, if you’re in the 49.5% tax bracket and contribute €5,000, you’ll save nearly €2,475 in taxes—straight into your pocket.

Wealth Tax Exemption
Pension savings are not taxed in Box 3, unlike regular savings and investments.

Start 2024 Strong
By contributing now, you not only save on taxes but also grow your retirement fund tax-free, giving your savings a head start for the next year.

Act Now: Contribute Before December 31
Any contributions made after this date will count for next year, so don’t wait until the last minute!

Calculate Your Room
Check your Uniform Pension Overview (UPO) or use online tools to calculate your annual and reserve allowances.

Open a Pension Account
Providers like Brand New Day, BrightPensioen, and Rabobank make it easy to set up a tax-advantaged pension account.

Consult a Pension Advisor
A pension advisor can ensure you’re not missing out on opportunities, especially if you have a complex financial situation or fluctuating income.

Plan Monthly Contributions for 2024
After your year-end deposit, set up monthly contributions to spread risk and ensure you never miss out again.

Scenario 1: High-Income Freelancer

• Annual income: €90,000
• Allowance: €10,000
• Contribution: €10,000 before December 31
• Tax savings: €4,950 (49.5% tax rate)

Scenario 2: Entrepreneur Catching Up

• Reserve allowance (last 7 years): €15,000
• Contribution: €15,000 before December 31
• Tax savings: €7,425 (49.5% tax rate)