Understanding superannuation retirement rules can be like trying to solve a rubix cube – you think you’ve got it all figured out, but you just can’t make it all line up.
I’m going to give you a complete run-down of the most common superannuation retirement rules, as well as answer some common questions.
Superannuation Retirement Rules
The superannuation retirement rules are largely concerned with when you are able to access your super, how much you can contribute to super, the super tax rules, investment rules and withdrawal rules.
Each of these main areas of the superannuation retirement rules have dozens upon dozens of underlying rules. In this article, I’m going to address each of these main areas individually and then provide you with further reading for each section if you wish to explore it further.
If you haven’t already noticed, superannuation is a complex beast!
Super Contribution Rules
There are limits on the amount that any one individual can contribute to superannuation. But, there’s not just one limit, there are a number of limits or caps that apply, as follows:
Concessional Contribution Cap
The concessional contribution cap is the amount that can be contributed to superannuation where a tax deduction has been claimed by the contributor in respect of the contribution. The general concessional contribution cap is $27,500 per person, per financial year. However, you might have the ability to carry-forward unused contributions from previous years. The concessional contribution cap is in addition to the non-concessional contribution cap and can be utilised in the same year.
Learn more: The concessional contribution cap
Non-Concessional Contribution Cap
The non-concessional contribution cap is amount that can be contributed to superannuation using after-tax dollars, usually from your personal bank account. The general concessional contribution cap is $110,000 per person, per financial year. However, you might be able to bring-forward up to two additional years worth of the cap. The non-concessional contribution cap is in addition to the concessional contribution cap and can be utilised in the same year.
Learn more: The non-concessional contribution cap
Total Super Balance (TSB)
Your total super balance is relevant when determining whether or not you are eligible to make any further non-concessional contributions to superannuation. Your total super balance consists of all balances in accumulation and pension accounts and is calculated as the value of your balance on the most recent 30 June. There are a number of applications for the TSB. Most notably, if your TSB exceeds $500,000, you are unable to utilise the concessional contribution carry-forward rule and if your total TSB exceeds the transfer balance cap of $1.9 million, you are unable to make any further non-concessional contributions.
Accessing Superannuation Rules
To access your superannuation, you need to satisfy a superannuation condition of release. There are a number of conditions of release, but the most common are reaching your superannuation preservation age, meeting the superannuation definition of retirement or attaining age 65. Let’s take a look at a few:
Superannuation Preservation Age
Your superannuation preservation age is generally the first age that you become eligible to access your superannuation in some way or another. Once you attain your preservation age, you can, at the very least, use your super to commence a transition to retirement pension.
Superannuation Definition of Retirement
The superannuation definition of retirement is the ultimate superannuation retirement rule that everyone wants to know about, because satisfying this condition of release allows for you to have unrestricted access to your superannuation balance as a lump sum or income stream.
Read more: Superannuation Retirement Age
Attaining Age 65
Once you reach age 65, there is no restriction on how much of your superannuation you can access, regardless of your employment status. Age 65 is therefore the holy grail age of being able to access your super without restriction.
Other Conditions of Release
You do not necessarily need to reach your preservation age, retire or attain age 65 to access your super. There are ways that you can have early access to your super prior to retirement, such as if you suffer from financial hardship, a terminal illness, or a total and permanent disability.
Superannuation Withdrawal Rules
The amount that you can withdraw from superannuation depends on the condition you have met that allows you to access your super. Listed below are a few of the most common superannuation retirement rules when it comes to withdrawing super.
Transition to Retirement Pension
If you have used your super to commence a transition to retirement (TTR) pension, you are permitted to withdraw between 4% and 10% of your TTR pension balance each financial year. No more, no less.
The reason you would have a TTR pension is if you have reached your superannuation preservation age, but are continuing to work and have not met the superannuation definition of retirement.
Learn more: Transition to retirement rules
If you have used your super to commence an account based pension you must receive pension income payments of at least 4% of your account balance each financial year. There is no upper-threshold on the amount of pension income you are eligible to receive.
You might have chosen to start an account based pension because you have met the superannuation definition of retirement, or attained age 65.
Learn more: Account-based pensions
Lump Sum Super Withdrawals
If you have met the superannuation definition of retirement the rules allow you to withdraw as much of your super balance as you like in the form of a lump sum.
You might choose to access your super as a lump sum if you are looking to pay off debt, cover the cost of a capital expense, provide a financial gift to a loved one, or perform a recontribution strategy.
Read more: Super Lump Sum Withdrawal Rules
Superannuation Retirement Tax Rules
There are a number of superannuation retirement tax rules; such as contributions tax, tax on super earnings, tax on pension income, tax on super withdrawals and tax on death benefit payments. Covered below is an overview of each of these.
All concessional contributions incur contributions tax of 15% on the contribution amount. An additional 15% is payable by very high income earnings, known as Division 293 Tax.
Learn more: Super contributions tax
Tax on Super Earnings
One of the main benefits of superannuation is the concessional tax treatment on investment earnings. Specifically, all investment earnings derived from assets held within a super accumulation or TTR pension account are taxed at 15%. If an asset was owned for longer than 12 months, the capital gain is only taxed at 10%.
Super investment earnings within an account-based pension are received completely tax-free.
Learn more: Tax on super earnings
Tax on Pension Income
While under age 60, the taxable portion of pension income payments will be assessed at your marginal tax rate, together with all other sources of taxable income. The tax-free portion of pension income will be received tax-free.
If you are aged 60 or over, all pension income is received tax free,
If your pension balance includes an uncommon untaxed component, higher taxes might be payable. Check with your superannuation provider.
Tax on Super Withdrawals
Similar to pension income, the taxable portion of a lump sum withdrawal over the low rate cap is assessed for tax when under age 60. The tax-free portion of a lump sum withdrawal is received tax-free.
If you are over age 60, all lump sum withdrawals are received tax-free. However, if your balance consists of an untaxed element, tax may be payable, even over age 60.
Read more: Tax on Super Withdrawals
Tax on Death Payments
The tax on death benefit payments generally depends on who the death benefit payment is made to – as in their relationship to you when you die.
Certain dependants will receive death benefits tax free, while others may pay tax on the taxable or untaxed components.
Learn more: Tax on Super Death Payments
Super Investment Rules
Legislation permits you to invest your super in almost anything, provided the investment is made for the benefit of your retirement.
However, while legislation permits you to invest in almost anything, your investment options will be limited to the investment options offered by your specific superannuation fund.
Each superannuation fund will have an investment menu that could consist of as little as five investment options or as many as 500 – or more. You can ask your superannuation fund for a list of investment options available to you. A self managed superannuation fund (SMSF) generally allows you to invest in anything that the legislation permits, unless limited by the SMSFs trust deed or investment strategy.
Read More: Super Investment Options
It can be difficult to navigate the superannuation retirement rules, especially when one rule can have implications on another. To be completely honest with you, if you are looking to plan your retirement, you can save yourself a lot of heartache and frustration by employing the services of a licensed financial adviser that specialises in retirement planning advice. Such advisers will be able to optimise your overall retirement planning strategy and are likely to cover their fee in no time through the advice provided, so that you are essentially receiving free retirement planning advice.
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.
Frequently Asked Questions
Here are some common questions we get asked around the superannuation retirement rules.
How Much Super Can I Withdraw When I Retire
The amount of super that you can withdraw when you retire is unlimited, assuming that you have attained your superannuation preservation age and met the definition of retirement for superannuation purposes.
At What Age Can I Withdraw My Super Without Paying Tax?
You can withdraw your super without paying tax from age 60 onwards; however, there are also ways to withdraw your super without paying tax while under age 60.
Read more: When Can I Access My Super Tax Free?
How Much Super Can I Withdraw Each Year After Retirement?
You can withdraw as much super as you like each year after retirement, but once your account balance reaches $0, you cannot withdraw any more.
How Much Super Can I Withdraw After 65?
You can withdraw as much super as you like after age 65 up to the value of your account balance. There is no restriction on how much super you can withdraw after age 65.
Can I spend my entire super and then get the pension?
Yes, you can spend your entire super and then get the pension, but there are more strategic ways to optimise your retirement plan and still receive full Age Pension entitlements.
Can I take my super out at 65 and keep working?
Yes, once you reach age 65, you can take your super out and keep working. Age 65 signifies a superannuation condition of release, giving you unrestricted access to your super.
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