Inquiry 1
Your column is always something I look forward to; I truly appreciate the helpful insights you provide.
This might seem like a simple question, but I haven’t received a clear answer from my superannuation fund.
I’m 60 years old, single, have $500,000 saved, and earn roughly $100,000 per year working four days each week. I do not own any property and am currently renting (I’m hoping an inheritance from the family home will take care of my housing needs).
I believe that I can now access my super without incurring taxes to compensate for the one day of work I’m no longer doing.
Currently, I am not salary sacrificing, but I comprehend that I can essentially reinvest what I withdraw back into my super, which would lower my taxable income.
Is my understanding accurate? Can I access my super tax-free while also contributing salary into it before taxes? If so, this seems like a straightforward decision given my situation.
Yes, you have generally grasped the concept correctly.
Upon reaching 65 you’re allowed to start withdrawing from your super up to 11 percent of your total balance annually through a transition to retirement pension.
These pensions serve two key purposes.
Firstly, they can supplement your current income, especially if you’ve transitioned to part-time work.
Secondly, they provide a tax-free income alternative that replaces the employment income you’re salary sacrificing into super. Salary sacrificing is a highly tax-efficient method for many individuals to increase their super.
Let’s consider an example of someone in a similar position to yours (someone with an income of $100,000 each year).
If they decided to salary sacrifice, for instance, $15,000 annually into super rather than taking it as salary, they would save $4,800 in income tax along with the Medicare levy ($15,000 multiplied by 32 percent). However, they would incur a superannuation contributions tax of $2,250 ($15,000 multiplied by 15 percent).
This results in a total tax advantage of $2,550 ($4,800 minus $2,250).
If you don’t require the extra income, you could simply leave things as they are.
But by salary sacrificing $15,000, your remaining income would be approximately $10,200 to manage your living expenses ($15,000 minus the tax savings of $4,800).
You have the option to recoup some or all of that lost income by withdrawing from your super through a “transition to retirement pension. ” All withdrawals made after turning 60 are tax-exempt.
You don’t need to convert your entire super into these pensions; only enough to satisfy your income needs.
Your regular accumulation account will remain active to accept ongoing employer contributions as well as salary sacrifice amounts.
This is a widely favored approach.
Question 2
Hello Craig. I eagerly anticipate your question and answer sessions every Monday, and I have gained a lot from your responses.
Eighteen months ago, I retired and started receiving a pension from my HESTA superannuation fund in February, which led to the closure of my accumulation account.
During the federal election earlier this year, I engaged in some casual employment, which resulted in a superannuation account being set up for me with AustralianSuper, currently holding less than $100. Is there any advantage or tax benefit for me to keep this account and contribute additional funds from my savings?
At this moment, I don’t have any other job opportunities lined up.
Thank you and best wishes, Steph
Hi Steph,
I appreciate your feedback.
If you have a significant amount of savings outside of superannuation, it might be beneficial to contribute some of it to your super account, as in the future you can combine these with your existing income stream, which is quite tax-efficient (there is no tax on the earnings or distributions).
However, there are age restrictions on making contributions (up until age 75) along with contribution caps based on your overall super balance.
Moreover, if you anticipate doing any paid work down the line, it could be simpler to keep a small super account for any future deposits.
There are regulations for super balances under $6000 that limit fees to prevent your balance from diminishing too swiftly due to those costs. AustralianSuper provides a clear explanation of this.
But if neither of these situations pertains to you, you can just withdraw the money and shut down the account.
Question 3
My mother has recently become a war widow since my father held a veteran’s TPI card.
She plans to seek a war widow’s pension from the Department of Veterans Affairs. Is this pension affected by the income and assets assessment? She has roughly $400,000 in assets.
The war widows’ (and widowers’) pension is provided to support those whose spouse was a veteran whose death resulted from or was related to military conflict.
As a compensation benefit, this pension is not subject to means testing and is tax-exempt. The DVA can offer more details.
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