Superannuation can be complicated and that’s mostly because there are lots of rules which provide restrictions, but there are also opportunities. For example, the opportunity to withdraw then recontribute superannuation can improve outcomes for adult children as beneficiaries of their parents estate, and benefit retired couples who may need to share superannuation.
In this article we explore some of the opportunities and rules for making more of your superannuation in retirement.
Superannuation account balance have two components – a tax free component and a taxable component – and the significance of these components becomes more apparent when reviewing the estate planning implications of superannuation.
A superannuation withdrawal and recontribution strategy provides an opportunity for people over the age of 60 (but more commonly over 65 years) to convert some of the taxable component of their superannuation to tax free money.
When a retiree turns 60 years of age, they may withdraw money from their superannuation without paying tax personally (with any funds withdrawn, being proportional between their tax free and taxable components).
Strategically, if they recontributed that money back into their super account as a non-concessional (tax-free) contribution, they would replenish their super account balance with money that now forms part of the tax-free component of the balance.
While there are neither adverse or beneficial tax implications for the retiree using this strategy, it can make a considerable difference for their adult children if or when these funds are inherited.
This is because non-dependant adult children, as beneficiaries of their parents’ estate would be obligated to pay 15% (plus Medicare in some circumstances) on the taxable component of the superannuation left to them as an inheritance. There is no tax paid on the tax-free component of superannuation distributed to a non-dependant adult child.
As explained above, the withdrawal and recontribution strategy effectively converts some of the taxable component of the super balance to tax-free, and this would mean the inherited super account would have a reduced taxable component, creating more tax-free super proceeds for the adult children as beneficiaries.
In addition to estate planning opportunities, this approach can also assist couples who may need to share their super in retirement.
Retired couples can also use the withdrawal and recontribution strategy to their advantage, particularly if one half of the couple has considerably less super in their super account.
In this situation, money could be withdrawn (without paying tax personally) from the higher value super account and recontributed as a non-concessional contribution to the lesser value super account.
This strategy may help couples to manage their combined superannuation balance and protect against potential future adverse changes to superannuation rules, while also providing for a more effective estate planning outcome.
Of course, there are strict rules that must be observed. Including age considerations.
A withdrawal and recontribution superannuation strategy while suitable for retired people over 60, as mentioned earlier, it’s more common for people between 65 and 75 years of age.
Opportunity to make the most of this strategy will also depend on whether the retiree has capacity under the contribution caps and Total Super Balance (TSB) rules to make non-concessional contributions. There may also be the opportunity to utilise bring-forward contributions.
Next steps…
As you’ve read here there are rules AND opportunities that need to be considered for implementing a withdrawal and recontribution superannuation strategy, all of which requires careful consideration in context of an array of variables specific to individual circumstances.
If you’d like to know more about superannuation and opportunities for sharing super or improving your estate planning outcomes, please contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007 or emailing info@stratusfinancialgroup.com.au and we’ll Make it Happen.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This information does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances.
*Please note: Credit advice is not offered under the Fortnum Private Wealth AFSL. When required, we refer to appropriately qualified professionals.