If you’re thinking about using your pension money soon, there’s one crucial thing you need to be aware of.
When it comes to time to retire, it can be stressful thinking about your finances in the future.
It’s important to make sure you are well prepared and informed – and that means understanding the mistakes you could make if you don’t do your research.
This is Money has shared one tip that you’ll need to be aware of.
It says you need to avoid a tax grab when you first access your pension.
This is Money says: “For those starting drawdown at retirement, there is a way to avoid being put on a scary emergency tax code and paying an unnecessarily large amount of tax on your first bit of income.
“HMRC has not yet figured out a way to avoid clobbering people in this way on their first withdrawal, which forces them to reclaim the overpaid tax and causes delays to them accessing their cash.
“A better way around it is to take a small initial sum when you start accessing your pension of, say, £100, to avoid a tax bill on the whole amount you want to take out.”
It adds that your second withdrawal can then be for the amount of income you require and this should be taxed at the correct rate.
In the event that you do end up paying emergency tax, you should call HMRC as soon as you can to get a refund.
It’s important to be well prepared for taking your pension so you can make informed decisions about when and how to access your money, ensuring you have enough to maintain your standard of living in retirement.
Proper preparation also helps you avoid unnecessary tax charges and financial difficulties later on.
By following this easy tip, you could save yourself a lot of stress and hassle.