Transfer within SMSF if one beneficiary is > 1.6M ?

Homer & Marge are 54 with a SMSF.

Homer has a SMSF balance of 1.3M
Marge has a SMSF balance of 0 & a Defined benefit of 750k which can only be transferred to the SMSF at age 58.

As Homer's balance in the next 6 years is likely to be > than 1.6M , can he transfer anything greater than 1.6M to Marge's SMSF account ? Before age 60 or after age 60 in Pension phase?

The 100k per year Non-concessional transfer can be used ? but only after 60 ? And what about amounts > 300k (3 x Non-concessional brought forward)

The goal is to get both beneficiaries to as close to 1.6M each at age 60


thanks

 

No

 

thanks Terry !

Could Homer , once 60, withdraw 300k then Marge contibute same before starting Pension phase ?

 

Potentially possible

 

There may be some strategies that can assist. But these may need to wait a few years under a condition of release occurs. Then a recontribution to Marge's account may occur. One to explore in the interim is a spouse concessional contributions split each year. This can stop the $1.3m balance getting any larger through contributions and allow Marge to hold a accumulation balance in the SMSF.

 

Homer should normally commence a account based pension at age 60 then withdraw $300K as a pension. This may be impacted by a condition of release however as a Transition to Retirement Pension (TRIP) may be limited to 10% ie $130K and TRIPs cant be commuted and a lump sum drawn until a new COR occurs. If Homer was not retired he needs to consider what condition of release allows a lump sum. Turning age 60 doesnt necessarily mean access to super is unlimited. This is the "cashing restriction problem". It can catch out some SMSFs and can render the pension non-complying ie it is taxable.

The most common conditions of release for paying benefits are that the member:

• has reached their preservation age and retires
• has reached their preservation age and begins a transition-to-retirement income stream
• ceases an employment arrangement on or after the age of 60
• is 65 years old (even if they haven't retired)
• has died.

 

Out of curiosity, why would you effectively cash in the wife's defined benefits pension? Most of the defined benefits pensions I have looked at (PSS, CSS and UniSuper) seem far more generous, particularly as they are usually indexed, than many retirees will struggle to match through other investments, especially in later years. Perhaps it is my financially conservative nature but the thought of a do nothing highly secure cashflow underpinning my retirement income is quite appealing.

 

Yes very good point Mark. Cashing a DB pension will typically erode its value. Conventional wisdom is dont cash a DB pension or transfer it to a smsf. DBs have the benefit of not having an account value as such. They are a non asset based income stream often paid after death of the member to a spouse as well. Converting that income stream to an account value to rollover may be avery costly choice. Some funds eg PSS only permit rollover to a limited number of approved funds ie Not a smsf. Seek specific DB pension advice from the fund about the options and how the $750K was arrived at since DBs dont typically have an account value

I posted assuming the DB remains and a new SMSF interest is also created and increased. But note also that DBs are now specially valued for the $1.6m test and rank ahead of non DB balances. The magic number is 16. 16x annual pension is the amount that adds to the $1.6m test. ie $100K of annual pension maxes that members super. It may prevent some new contributions to any other fund ! The start date is when that DB pension commences. There may be strategies available - consult the fund.

 

Marge's Super is with Aware Super NSW (formally First State)
She does not qualify for a pension (missed that option by a year) but a lump sum at 58, which if left with Aware is just in the normal Super accounts subject to gains /losses.

The "defined benefit" part is that the majority of the lump sum is protected until 58.

 

It sounds as though Marge doesn't have a defined benefit pension just a regular contributions based one. Her balance is preserved (locked up) until a condition of release happens, (age and leaving employment being the common on) just like pretty much everybody now enjoys.

A defined benefit pension is a pension amount defined by length of service and final average salary, not on the performance of the contributions made. They are usually indexed to cpi, have an ongoing pension at a lesser rate for spouses on the death of the pensioner and no payout of any sort to the pensioners estate. Good if you plan to live a long time, not so if you are expect to cark it soon. Many were predicated on people dying far younger than is the current expectation so tend to be quite generous. They have been done away with for new entrants over the past 20 years or so.

 

Mark,

yes you are correct.

Bad terminology on my part.

Her balance is still calculated on length of service and final average salary but there is no pension option.

It was the SASS scheme with First State. Quite complicated with FAS + points calculations relating to contributions and years of service.

thanks again !