November 26, 2014

Access super while still working

You no longer need to stop work to access your superannuation savings. The law allows you to access your super while you are still working, as long as you have reached your preservation age which is 55 for anyone born before 1 July 1960, and gradually increases to 60 for anyone born after 30 June 1964.

If you have reached your preservation age, you can commence a Transition to Retirement (TTR) pension from your self managed superannuation fund (SMSF). The minimum amount of pension that you can access is based on your age at 1 July or at the commencement of your pension, and a percentage of your pension account balance. This starts at 4% for people aged under 65 and gradually increases to 14% for ages 95 or older. If your pension commences during the year, the minimum amount is based on a pro-rata calculation from the commencement date. The maximum amount of TTR pension you can receive is 10% of your pension’s account balance. The pension must be paid as a non-commutable income stream, which means you cannot convert it to a lump sum until you meet a condition of release such as turning 65.

You can also continue making contributions into your SMSF once you commenced a TTR pension. You could contribute your salary into your SMSF and replace it with a TTR pension. By doing this your SMSF will pay 15% tax on the sacrificed salary instead of you paying tax at your marginal tax rate. Of course, you need to consider the concessional contributions cap of $30,000 per annum, or if you are 49 years of age or over on 30 June 2014, the cap of $35,000 per annum.

You could even receive a TTR pension and re-contribute it back into your SMSF as non-concessional contributions. This increases the tax-free portion of your superannuation savings. You need to consider your non-concessional contributions cap of $180,000 per annum or, if you are under 65 at any time in the first year you make a contribution in excess of the annual limit, the cap of $540,000 in one year or over three consecutive financial years. If you do re-contribute the pension back into your SMSF and you are aged 65 to 74, then you need to satisfy the work test. This involves having worked 40 hours in 30 consecutive days in a financial year.

The tax advantages of accessing a TTR pension from your SMSF is that the investment earnings from the SMSF’s assets supporting the pension are tax-free. On top of that, if you’re 60 or older, your pension is also tax-free in your hands. If you are aged 55 to 59, the taxable component of your pension is taxed at your marginal tax rate with a 15% tax offset.

You can stop your TTR pension at any time and revert your SMSF back to an accumulation phrase. Before doing anything, make sure your SMSF’s Trust Deed allows for a TTR pension.

If you would like any further information in relation to the above article please contact Mark Hann of our office on 9387 5637.

Source: Law Central Bulletin 464

Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

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