Uneven Super Split

We're in our 30s, and have a large discrepancy in our super fund sizes. We conservatively have enough that we will breach the total $1.6m x2 cap of $3.2m by age 60 without any further input (assuming no GFC mach 2). What are people's thoughts on best way to combine to maximise benefit of $1.6m cap each? Could we setup a smsf trust with a deed that allowed movement of balances between us?

 

Don’t forget that the $1.6M limit will be much larger by the time you reach 60 -it will be increased by CPI in $100,000 increments.

You can’t setup an SMSF deed that overrides the Superanuation laws. You can transfer up to 85% of your annual concessional contributions to your spouce.

 

Thanks Cadbury99. Our split is about 70/30, and if inflation moves at about 2.5% based on our projections we're going to have an issue with mine (say the cap is mid-high $2m range), and possibly also the total for both (not that the latter matters if we cant somehow 'share' this cap). If Govt Policy changes in the interim and the preservation age increases above 60 the problem obviously becomes larger (assuming Super performance continues to outstrip inflation).

 

Can’t you focus on building your partners Super with non concessional contributions (NCC) using the three year bring forward rule to try to balance up. Eg NCC of $100k prior to 30/6/18. Another NCC (using 3 yr bring forward rule) of $300k on 1/7/18. You can also split 85% of your concession cont ($25k) to your partner. Best part of $450k into Partners fund in less than 6 months.

Repeat until evened up then equal contributions from then on.

 

I'm curious how you've got such a large balance at a relatively young age? Have you been putting in lots of extra contributions, or is it from compulsory amounts paid by your employer from a large salary?

I'm reticent to put in too much extra as it gets locked up till preservation age.

 

Thanks Nodrog, some good options there. What I am considering is whether we should change our focus moving forward to building asset / income outside of Super for an early 'retirement' in a decade or so (whatever that looks like), hence my queries about whether we can do anything with the existing balances. We're probably a year or two shy of changing focus to that so will further investigate what you have suggested. P.S. I have found real value in your threads on shares, I knew nothing at all about shares and investing a few months ago and while I still know next to nothing I am much better informed than I was. Loved the balcony shot too, we have 6 acres back home that I hope to return to one day...

 

No worries Danyool. I started my second business 12 years ago and we have had a reasonably good trot. My investing focus has been on paying down the PPOR and paying balance in to Super. Yes lots of extra contributions, max concessional cap for my wife and I every year. Also a large one-off contribution some years ago as an offset to a capital gain for an intra-group sale of shares that I wont go in to here. Also I am (very) late 30s, and also had employer contributions from the time before I started the Company.

 

There are some new laws that I am not across yet. A person selling a house may be able to contribute an extra lump sum into super. Might be worth getting some financial advice on.

 

Probably not useful in this case given age requirements:

Contributing super by downsizing your home: 10-point guide

 

That is a good summary and shows how complex this new law is.

 

What isn’t complex about Super since 1 July?

 

Since 1 July 1993!

 

Nice one! Sounds like you've got a good business there. I can't really help further, but all the best with it.

 

Not advice, but my thoughts.
I don't think you can dodge caps without falling foul of the law.
What about buying or building expensive to build business real property with an SMSF. You could use a related party (you) loan at the highest commercial rate you can substantiate. Ie, redraw on PPOR at owner occupier rate, lend to SMSF at a no doc commercial rate? You take a primary lease over whole property (lease deductible outside of super) do some value ad and sub let most of it. The depreciation could keep the asset book value low for the SMSF and caps, you maximise the cash outside of super.

 

I would focus outside super particularly if you have reached / will reach the $1.6M limit.

Are you investing more than $25k per year in supe and if so, what do you see as the benefits?

No-one knows how the government is going to change the super laws between now and retirement. In addition, if you want to retire earlier you can't with all your money in super.

You can setup tax friendly structures outside super in which to invest to reduce tax to that of a company.

In summary, superannuation is risky because of the unknowns and losing access to your money until you retire. To mitigate this risk, invest an allocated percentage outside of super.

 

Congrats on getting to such a good position at such a young age.

There's a number of options you have available, some will only open up as you get older like starting a TTR and re contributing on behalf of your spouse. One of the suggestions above was to max out your spouses Non concessional cap, you could also do super splitting (ATO NAT 15237-06.2017) with your spouse where you can split 85% of eligible contributions across to your spouse. I think this one is only available in an SMSF but it's probably no going to make a big dent on the difference you stated.

I think the main point to make is that there is still no cap on the amount that you can have in super. The $1.6M cap is the amount you are limited to in pension phase, but you could still have a multi million dollar fund you would just have part in pension and part in accumulation. Of course the $1.6M cap does restrict non concessional contributions though. So, assuming you had $2M in super, then you could have $1.6M in pension (0% tax on earnings) and $400k in accumulation (15% tax on earnings). The 15% tax rate is still a great rate IMO.

Of course you should seek financial advice if you are going to do anything with your superannuation as stated above the laws are extremely complex and constantly changing, although I hope we will get a bit of a break and can all get these changes bedded in before they announce any more.

 

@Westminster is using a strategy which is brilliant...in a SMSF..you might want to look into that...i you have elderly parent you may get it quicker.

Hey Westminister it might be good sharing your idea...that is if you are comfortable sharing...

 

I’m not aware of @Westminster’s strategy but if you have other members in the SMSF especially over preservation age (eg parents) there a few things possible including early access of sorts. Just need to be sure that everyone gets along as more members increases the chance of problems.

 

What about the gifting to the old parents strategy.

 

I'll let her answer.