Post retirement non-concessional contribution to wife's super account...

Hi all,

Hypothetically, say I'm just retired at 65 and my wife is 58.

I have $2m in my SMSF account, my wife has very little in her SMSF account.

Can I withdraw $300k and contribute it to my wife's account over two years and convert the $1.7m into a pension?

The idea being that my wife could invest in something and convert it into a tax free pension when she retires.

Happy to be educated.

super-act

 

Hi SA

I have recently touched on this in the following post

What's your exit strategy?

Be it that super was always a side issue for us none the less we were able to achieve a substantial accumulation in our super fund. I never saw this as a strategy so we have not actually contributed to our super funds since 2005.

My comments in the post are just about topping up our super funds to achieve that $1.7m tax free status for both my wife and I.

When you convert the $1.7m into a pension then you will have reached your maximum that is allowed in the pension and the rest will remain in your SMSF.

My understanding is that you can then withdraw the excess $300k from your SMSF as a lump sum and it should be tax free. This is your money to do with what you want and if that is to give it to your wife to then make a non-concessional contribution that should be fine. You accountant should be able to clarify the tax situation.

Lump Sum withdrawals when aged over 65

The alternative way to access your Super Benefit when you reach age 65 is as a Lump Sum withdrawal. A Lump Sum withdrawal is simply an amount accessed from your SMSF that is not a Pension payment. You can make Lump Sum withdrawals whenever you like from your SMSF once you turn 65. There is no maximum Lump Sum amount if you are aged over 65 and you are free to access all your Super Benefit as desired. No tax is payable on Lump Sum withdrawals made after 65.

SMSF Education - Access your Super Aged Over 65 | ESUPERFUND

The $300k can be contributed at the same time under the 3 year bring forward rule (its actually $330k as the max per year has just been increased to $110k)

You can repeat this after 3 years so your 5% minimum pension payment could be recycled into your wife's SMSF.

As mentioned you would speak to your accountant to verify any information.

 

Yes it is a strategy. I would encourage full plannig from a licensed adviser on the many ways you can achieve this goal. There are also things like future death benefits to consider. At time you rebalance you also should be seeking strategies to wash the tax elements. It may save kids from 17% tax in the future..

One trap is you can easily incorrectly affect pension caps.

Eg Joe had a super pension that started in Feb 2020 of $1.5m. This pension account at 1 July 2021 is worth $2m due to rise in value of investments. This is allowed. You can exceed the cap but cant start that way. But if you commute it is also lost and reduced to $1.6m So $400K of income is now subject to tax. Many who DIY have no idea and I have seen examples in the past few months we cant fix.

The bring forward rule has a age limit and must be carefully managed as concessional is also being maxed. Getting it wrong will see excess contributions taxes for exceeding BOTH caps.

 

Thank you all for your valuable contributions, much appreciated!

Luckily I'm just 54 and planning to see a team shortly to set my trajectory.

I'll probably still have to work until 65 unless they can work some magic.

Cheers, super_act

 

So best to grow it in the same super account? I am facing such situation.

 

Not necessarily, maybe. eg tax components, reversionary issues and many more. Best suggestion may be to NOT commute a capped-out pension. Commuting means a TBAR event must be reported and it will then likely trigger the lesser $1.6m (not $1.7m) thershold. Drawing a pension to bring it down and recontribution by spouse can also have strategy benefits too eg deferral of pension payments if spouse is younger. Changing tax elements, estate planning issues ?

eg Doris has $25K super. Husband Stuart has a $1.6m pension account which has grown to $2m aftre markets rose. Doris is worried if Stuart dies she could only have an initial $25K to live on and knows Stuart wants $300K ato benefit their adult son jamie if he dies and his death benefit presently shows this. At present this could have some tax issues too.. They discuss this and consider drawing $330K as a pension from Stuarts super. Doris will contribute this as a bring fwd non-concessional sum before the age limits impact her adding to super later. Doris makes Jamie her death beneficiary with her industry fund. Stuart updates his death benefit / revesionary nomination. Doris elects to make her account a pension to limt tax on earnings.
- No tax on Stuart taking funds out
- No lost net super tax benefits (They go from Stuart to Doris).
- Doris now has $350K + of super and is more content
- Jamie wont pay 17% tax on $300K...But know he must wait until Doris dies not when Stuart dies

 

Thanks for sharing @Paul@PFI