Tips to redeem your pension plan and take advantage of all the tax benefits

For all those interested in investing and diversifying their portfolio, pension plans are one of the most common tools, especially for retirement planning. However, there is a key moment: **how can you withdraw that accumulated money without the tax authorities taking a large part of the profits?**

Thinking about withdrawing your pension plan inevitably brings up the question of the taxes that **will affect the savings we’ve accumulated for retirement**. Therefore, in this article, we’ve compiled the most important points and the most effective tricks to withdraw your pension plan, thereby maximizing tax benefits.

When can you withdraw your pension plan?

It’s important to remember that the withdrawal of **a pension plan is regulated by law**. Therefore, it can be highlighted that there are cases where you can access this money, and the situations are as follows:

• Retirement
• Permanent disability
• Death (in this case, the withdrawal is made by the heirs)
• Severe dependency or high dependency
• Long-term unemployment
• Serious illness
• Ten years after the contribution (available from 2025 for contributions made from 2015, as stated in Law 26/2014)

However, it’s important to highlight that **each of these situations has different tax implications**. Therefore, if you intend to withdraw your pension plan, it’s crucial to choose the right time and method for your situation.

What options do you have to withdraw your pension plan?

After knowing the cases where you can withdraw your pension plan, it’s time to highlight that **there are different withdrawal options**. Here, it’s important to know that the choice of how to withdraw the pension plan directly affects the tax burden you will have to assume:

• In capital form - All the money is received at once.
• In income form - A periodic amount is received, whether monthly, quarterly…
• Mixed form - Part is received as an initial capital and the rest as periodic income.
• In periodic withdrawals without a defined modality - You recover the money when you need it, without setting a fixed income.

Taxation of the withdrawal: how the pension plan is taxed

The big challenge is at this point: The tax authorities consider the withdrawn money as income, **so it is taxed in the personal income tax (IRPF) as if it were a salary**. What does this mean? The more money you withdraw in a single year, the higher your tax bracket and, of course, the more you pay.

However, **there is an exception of interest**. All contributions made before 2007 (i.e., until December 31, 2006), can benefit from a 40% reduction if withdrawn in capital form and within the legal deadline. This is stated in the Transitory Provision 12 of the IRPF Law.

What happens if the contributions are later? Here it should be noted that contributions made after the mentioned date do not have the mentioned reduction.

Due to these cases, we emphasize one point: withdrawing at the right time and in the correct form can lead to significant tax savings.

Tricks to withdraw your pension plan with tax efficiency

When it comes to withdrawing your pension plan, **there are a number of tricks that can help you get the most out of it**. After all, it’s important to make a difference to achieve the best results. Some key tricks to achieve this are:

• Stagger the withdrawal - Dividing your pension plan withdrawal over several years allows you to stay in lower tax brackets.
• Avoid withdrawal in high-income years - Are you currently working or receiving compensation? In this case, it’s better to postpone the withdrawal.
• Combine with other income sources - When diversifying, you might want to play with savings income or passive income.
• Do you have contributions before 2007? Take advantage of the reductions.
• Optimize in case of early retirement - If you stop working at 60, for example, you can start withdrawing earlier without moving up tax brackets.

While these tricks can be interesting, it’s important to emphasize that it requires good planning. Our recommendation from Inversa is that you have a tax advisor to help evaluate your particular situation and guide you through the process.

Is it worth withdrawing the pension plan all at once?

Withdrawing in capital form may seem tempting, but also risky. Although it’s more immediate, it can place you in higher tax brackets, which could mean paying up to 47% of that money in taxes.

This is only interesting if you can apply the 40% reduction for contributions before 2007 or if you have no other income that year.

We always say that it depends on the specific case and your financial situation. However, in most cases, opting for a combination of capital + income proves to be more efficient.

Investment alternatives after withdrawing your pension plan

Once you’ve withdrawn the pension plan, the next step is knowing what to do with that capital. **Is it better to leave the capital in a current account with barely any return?** Should you invest in assets with more potential?

At Inversa, we offer you a solid and much more interesting alternative: investing in real company invoices and promissory notes through crowdfactoring. This offers higher potential returns than traditional products with a managed and diversified risk level.

Moreover, you can make this investment progressively and in installments, reinvesting what you need when you need it.

What should you consider before making a decision?

You might be at a point where you don’t know which path to take, doubting whether to choose to withdraw your pension plan or whether to let the opportunity pass. In this case, it’s important to make your decision by considering these points:

• Your current labor and tax situation
• If you are working or already retired
• Do you have other expected income? Such as rent, inheritances…
• Your assets and medium-term needs
• Possibilities of diversifying your investment

While there are times when having the money within reach may seem tempting or generate doubts, **it’s important to take time to plan**. Why? Because this can mean saving thousands of euros in taxes.

Your pension plan doesn’t end when you withdraw it: a new phase begins

Withdrawing your pension plan marks the beginning of a new financial phase. **Knowing how and when to do it can change your financial future**. And choosing the right way to manage that capital too.

At Inversa, we are here to help you take that step with flexible investment strategies, adapted to conservative or moderate profiles, with clear information and easy access through our platform.