If you have been fortunate (or unfortunate) enough to have received an inheritance, it’s sensible to make the most of it – at least out of respect for the person you inherited it from.
This article explores whether you can put an inheritance into superannuation, including whether there is a limit on how much of an inheritance you can put into super and if any taxes will be payable.
Can I Put an Inheritance Into Superannuation?
Yes, you can put an inheritance into superannuation. However, there are limits on how much of the inheritance you can put into superannuation. You also need to consider the type of contribution that should be made to super.
In Australia, once you receive an inheritance, it becomes your money. Therefore, you are free to do as you wish. You can use it to go on holiday, purchase a new car, buy a racehorse or … more responsibly, contribute it to super.
Depending on the amount received, you might be able to contribute the full inheritance into super as a lump sum. Whether such a strategy is appropriate or not depends on your circumstances.
How Much Can You Put Into Super from an Inheritance?
The amount you can put into super from an inheritance is based on the super contribution caps and your age.
If you wish to contribute an inheritance to superannuation as a lump sum and claim a personal tax deduction for the contribution, then the amount you can contribute is based on the general concessional contribution cap of $27,500, plus any unused carry-forward amounts available to you.
Learn more about the concessional contribution cap.
If you wish to contribute an inheritance to superannuation and not claim a tax deduction for the contribution, then the amount you can contribute is based on the general non-concessional contribution cap of $110,000, taking into account the bring-forward rule, if applicable.
Learn more about the non-concessional contribution cap
Benefits of Contributing Inheritance to Super
There are a number of benefits associated with contributing an inheritance to superannuation. Some of these include:
- More of your wealth will be invested in the tax-effective superannuation environment, where all investment earnings are taxed at a maximum of 15% – and tax-free once you enter retirement phase.
- The inheritance can be invested with your existing super balance, giving you a focused investment strategy and having more of your assets help in one place for ease of management.
- If you are under Age Pension age, any amount held in your super accumulation account will not be assessed for Centrelink purposes, for either you or your partner.
These benefits of contributing an inheritance to super can provide you with more for retirement.
This video explains some of the tax concessions available to you by investing inside super.
The Disadvantages of Contribution Inheritance to Super
There are also some disadvantages and risks of contributing an inheritance to super. Here are a few:
- Any amount contributed to super will be inaccessible until you meet a superannuation condition of release, such as retirement, or attaining age 65.
- Any amount contributed to super will likely be invested and therefore subject to capital fluctuations and market volatility.
- You will need to ensure that any contributions made are permitted by the superannuation contribution caps and not restricted by total super balance limits or age restrictions.
You should consider the above before contributing an inheritance into superannuation.
Do You Have to Pay Tax on a Superannuation Inheritance?
You may need to pay tax on a superannuation inheritance, depending on your age, the age of the person you inherited it from and the tax components of the deceased’s super balance.
Learn more about tax on super death benefits.
When you receive an inheritance, it could consist of non-superannuation assets (such as bank accounts, investments or property) or superannuation assets (such as a super accumulation or pension account). In fact, you may receive an inheritance as a combination of both.
Generally, you will not need to pay any form of inheritance tax on receipt of non-superannuation investments, but you may need to pay death benefits tax on receipt of superannuation assets.
Should I Contribute My Inheritance to Super?
Deciding whether or not to contribute some or all of your inheritance to superannuation will be determined by your objectives, your age and the contribution limits available to you.
Having received an inheritance, now would be an opportune time to seek personal financial advice from a licensed financial planner. Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
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