Making lump sum withdrawals from super over age 65 is easier than any other age and, in most cases, won’t incur any tax.
This article discusses the superannuation rules for an over 65 year old, including accessibility to super for people over 65 and the tax payable on a lump sum withdrawal from super when over 65.
For clarity and the purposes of this article, a lump sum withdrawal from super will be considered a withdrawal from the accumulation account of a superannuation fund.
It does not include a tax on pension income or commutations of a pension account. Those have been addressed in other articles.
Let’s begin with the accessibility that a person over age 65 has to their superannuation and their ability to make a lump sum withdrawal from super over 65.
Accessing Super At 65
In order to access superannuation, a person must meet a superannuation condition of release.
One such condition of release is attaining age 65. This achieves nil cashing restrictions. Nil cashing restrictions means that achieving this condition of release converts all superannuation savings to ‘unrestricted non-preserved‘ and there is no limit on the amount of balance that the member of the account can access in full or in part.
Put simply, upon reaching age 65, a person can access all of their superannuation balance with no exception. Some or all of the balance can be taken as a lump sum withdrawal, a pension income stream (such as an account based pension) or any combination of lump sums and pension income streams.
Withdrawing superannuation after 65 or commencing an income stream over age 65 is not compulsory. An individual may wish to leave all or some of their superannuation in the super accumulation account if they wish. Compulsory cashing of superannuation is a thing of the past.
Tax on Lump Sum Withdrawals from Super Over Age 65
The superannuation tax rules for people over age 65 are the same as the rules for people over age 60.
The differentiator of tax on superannuation withdrawals, for both lump sum withdrawals and pension payments, is age 60 (i.e. people aged under 60 are taxed differently to people over age 60). There is no change in tax application of superannuation withdrawals at any other age above age 60.
The way that withdrawals from superannuation are assessed for tax purposes for individuals over age 65 is based on the tax components that make up the superannuation balance.
A superannuation balance will consist of a ‘Tax Free‘ component, a ‘Taxable (taxed)’ component and a ‘Taxable (untaxed)’ component. The majority of superannuation balances will only include a Tax Free and Taxable (taxed) component. Some will be 100% Tax Free or 100% Taxable. You can find out the components of your super account from the provider or SMSF administrator.
For example, a superannuation balance of $500,000 may be 70% Taxable (taxed) / 25% Tax Free / 5% Taxable (untaxed). In a super accumulation account, these proportions will change daily based on any new contributions to the account and earnings from investments within the account, including fluctuations in capital value.
All withdrawals must be made proportionately from each component.
Tax on a lump sum withdrawal from super over 65 will be as follows:
|Tax Component||Tax %|
|Taxable (untaxed)||First $1.445M (lifetime indexed)||15%|
|Taxable (untaxed)||Balance over $1.445M (lifetime indexed)||45%|
Based on the example balance above, a $50,000 lump sum withdrawal from super over 65 would be taxed as follows:
|Component||Portion of Withdrawal %||Portion of Withdrawal $||Tax on Withdrawal|
*assuming that the $2,500 (5% taxable (untaxed)) portion of the withdrawal did not cause the member to exceed the $1,445,000 lifetime indexed cap.
Can I Withdraw My Super at 65 and Keep Working?
You are able to withdraw some or all of your superannuation after age 65 and keep working. Read more about the ins and outs by clicking here.
Transition to Retirement Pension Over 65
Once you reach age 65, you have met a full superannuation condition of release. Click here to understand how this affects a transition to retirement pension.
Superannuation Rules for Over 65
This article limited discussion to lump sum withdrawals over age 65. Click here for a more thorough understanding of the superannuation rules for over age 65.
Feel free to comment below if you have any questions on making a Lump Sum Withdrawal From Super Over 65.