In most relationships it’s common for couples to have different super balances, especially where one partner has taken time out of work to rear children or for whatever reason, has not been engaged in full-time employment. For employees, the amount of employer sponsored contributions made for us is also influenced by salary level, which generally increases the longer we’re in the workforce.
Changes to super since 1 July 2017 have put this issue under the spotlight and provided a real incentive to plan appropriately. It only seems like yesterday the $1.6M cap on the amount of super that could be held in the tax-free pension phase came to life but it’s been in force for almost two and a half years. Time flies when having a ‘super’ amount of fun…terrible attempt at humour…
‘Equalising’ the super balances between couples can help to avoid the need to hold amounts in excess of the $1.6 million transfer balance cap in an accumulation account, where profits are taxed at 15%, or worse, be held outside the tax-friendly super environment which could expose profits to the larger marginal individual rates of tax.
Another change to the super rules that are now available to individuals with a super balance less than $500,000, is the ability to carry forward unused concessional contributions i.e. before tax contributions, and make a ‘catch-up’ contribution in the future. This rule provides a real opportunity to maximise retirement savings and gain a personal tax deduction, especially once the nest becomes empty, the mortgage paid and surplus cash accrues.
Couples can also consider contribution splitting, which allows one member to rollover up to 85% of their concessional contributions made in the prior year to their spouse.
Another strategy available is where a member’s income from personal exertion is below $37,000. Their spouse may receive a tax offset of up to $540 if they make a spouse contribution of up to $3,000.
A strategy we employ at The Investment Collective that is specifically appropriate for couples who have reached 60, is the recontribution strategy. This involves withdrawing super from one member’s account and then recontributing some or all of the withdrawal into the other member’s account. This is really beneficial where one member’s balance is above the $1.6M transfer balance cap. The strategy can also mitigate the impact of death benefits tax when the remaining balance of super passes through to a deceased estate on the death of the surviving partner.
Equalising super balances between couples can bring tax benefits, assist with estate planning and boost the retirement nest egg. Come in and have chat with us…you never know where it will lead…
Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.