SMSF - Pension Phase lump sum

If a SMSF member is in pension phase, there is the minimum pension amount that needs to be paid to them. Instead of the minimum pension amount, can the SMSF distribute a way bigger amount one time during the financial year as a lump sum? Eg. $5k minimum pension must be paid but instead the SMSF distributes $100k as a one time lump sum to the member. Then the member re-contributes that $100k as a non-concessional contribution back into the SMSF prior to 30th June. (so it's becomes a tax-free component of the SMSF)

 

Where did you read that a pension phase super fund can avoid contribution tax? Or avoid contribution limits?

 

AFAIK you can't contribute to a fund in pension phase you may need to start another in accumulation phase provided you can meet the work test and other requirements.

 

Yes, I should've been more clear. I meant re-contributing the $100k into the SMSF which will go to accumulation phase account (which may already be up & running)

 

Doesnt this get taxed on the way in?

 

Non-deductible contributions don't get taxed, but they cannot be claimed either.

 

I find this a good source of information to start a conversation with your advisor...
SMSF Learning Modules | ESUPERFUND

 

In my opinion, this is where a good FP can come in handy even if it is just to make sure you do not fall foul of the various issues surrounding superannuation. It was through a combination of strategies known to the planner and which I was aware but not in fine detail, I was fortunately able to arrange for the funds in the SMSF for be 97% tax-free and the remainder tax taxable.

 

There is no maximum pension you can take. So if you take more than the minimum then you will have met the pension obligations to enjoy tax free pension status in the smsf. And a single cash payment from the smsf is sufficient to be a pension.

Most people can contribute 100k to their smsf without incurring excess non concessional taxes. The contribution will go into an accumulation fund that could potentially l be transferred to pension phase depending on the member. However there are tests in the tax law like the work test or you might have 1.6m in super already so get professional advice.

The same pension monies can be used to re contribute. There is no review of the after tax source of funds for a non concessional super contribution. I think there is Tax Office guidance on that.

Strategies work well when your tax professional works with the investment priofessional. A good investment advisor is important to help you choose what to invest the money in and decide how much you need from the super fund to live on.

 

withdrawal and re-contribution strategy can be very tax effective

 

He he. One of the traps is while a person may know about it, it doesn't mean they have the ability to implement it properly. Same applies to many things in my view: Wills, EPoA.

Despite a large amount of assets possibly being at stake some just don't want to spend the money, which in context is a relatively small amount, to get it done right or they foolishly follow "suggestions" from their equally ignorant peers which is essentially the same reluctance to pay.

One of the funniest I have come across was a highly educated person whose SMSF was in pension phase. He paid all of his living expenses, rates, telephone, insurances, etc directly from his SMSF. Oh dear me.

 

Until the first annual audit, I'm sure...

 

That all forms part of the minimum drawings from the fund. If there was no other income or assets to draw upon, what would that person be using for their living expenses?

 

Wouldn’t that be part of his pension draw-down? You can draw as much as you like so long as it is above the minimum amount.

We get our super pension paid forthrightly. We use it to pay “living expenses, rates, telephone, insurances, etc”. Hard to see him doing anything much different to us.

Is it illegal to pay the bills directly from the SMSF rather than channel it through a personal account?
Marg

 

The gentleman advised he was paying his personal expenses directly from his SMSf bank account.

My understanding, and I'll leave it to professionals to correct me if I am wrong, is you pay money from your super account to your personal one and pay your bills from that. It's a super account to pay pensions - or a lump sum - not a piggy bank so don't mix the two.

It was in a social setting so I kept my mouth shut but my mind was racing at the joys to be had once the super accounts were submitted for audit.

 

We pay ours annually on/around 1st July and we place the funds in an Offset (via our personal accounts) which we then draw down over the next 12 months for living/lifestyle expenses.

I would rather get 4% after-tax in an Offset than say 1.5% to 2.5% after-tax in our SMSF.

Also, less admin.

By definition, a SMSF pension is an income stream and is a series of periodic benefit payments to a member.

Paying personal bills would be deemed adhoc, not periodic. Also the payments would be going to someone else and not to a member.

I don’t know whether it is illegal but best practice would stipulate that an SMSF pays the pension to a member’s personal account.

Income stream (pension)

 

I have seen ad-hoc payments like nursing home bonds and monthly care charges (not on the same day of the month/varying amounts/not directly debited) come out of SMSF.

 

With the re-contribution strategy (using the same $100k example), does the $100k pension have to be paid first then that same amount contributed back into the SMSF? What happens if it's done the other way meaning the $100k amount is first contributed as a non-concessional contribution then a day later the SMSF pays that same money out as a pension?

 

I don't believe it works that way. Re-contribution is first a withdrawal and then contribute. Otherwise it would not be termed re-contribution.

What is a re-contribution strategy? - Superfund Partners - SMSF Specialists

Best seek professional advice applicable to your circumstances.

 

Recontribute means take it out and put it back in.