Superannuation in the firing line
SUPERANNUATION will be under continual attack, no matter which party wins the next election.
One thing is clear - you should always be on the lookout for strategies to prevent the consequences of changes that are certain to come in the future.
One strategy is simple, legal, and highly effective - splitting your super with your spouse. Once a year you can instruct your fund to transfer to your spouse 85% of your concessional contributions made in that year. Your spouse must be under 55 if retired, or between 55 and 65 if not retired.
The transfer MUST be completed by June 30.
Think about Mike, aged 52. He earns $145,000 a year and is contributing $35,000 a year to superannuation. He already has more than $400,000 in superannuation but wife Helen, who has a casual job, has very little.
His deductible contribution of $35,000 will still be liable for the 15% contributions tax, but he can ask his fund to put $29,750 of it into her superannuation account.
Super splitting doesn't get Mike out of the 15% contributions tax, but it still has advantages. First, it would enable the couple to maximise the amount that could be withdrawn tax free if either one, or both, both stopped work between their preservation age and 60.
Unlimited withdrawals are only tax free for those aged 60 or more. Those aged between 55 and 60 can withdraw only the first $185,000 of the taxable component tax free. By having two large funds, they could withdraw $370,000 tax free between them.
The strategy can be especially useful if there is a significant age difference.
If Helen was older than Mike she would reach age 55 or 60 before him and so be able to enjoy the tax and access benefits that come at those ages. If she was younger than him, their Centrelink benefits could be maximised, as money in superannuation is not counted until the owner reaches pensionable age.
Suppose Mike turned 67 when she was 57. Subject to any restrictions in place then, he could cash out a large chunk of his super tax-free and put it into super in her name as a non-concessional contribution and, subject to other assets, get a part aged pension.*Noel Whittaker is the author of Making Money Made Simple. His advice is general and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org