Super re-contribution

Reducing tax for your beneficiaries

Australians are able to make personal after-tax contributions to super up until age 75, regardless of their work situation.   This recent change provides a longer timeframe for older Australians to undertake a strategy that can ultimately lead to less tax being paid by their non-dependant beneficiaries in the event of their death.

The strategy known as a ‘re-contribution strategy’ is where an individual withdraws a lump-sum from their super and re-contributes the funds back to super as a personal after-tax contribution.   The withdrawal is proportionately taken from the taxable and tax-free component in the individuals account, but the contribution going back in to super is entirely tax-free.

Why is this Beneficial

When an individual dies and the beneficiaries of their super account are non-dependant i.e. adult child, the beneficiaries or the estate pay tax on the taxable component of their account, which is typically 17%.

This can have a significant impact on the amount of money your beneficiaries receive.   As a simple example, if an individual, aged 68, had a total super balance of $200,000 that is 100% taxable, with non dependant adult children as beneficiaries. The tax could be as much as $34,000.    Converting super to tax free components would eliminate this tax.

A re-contribution strategy, is complex and difficult to implement, given super rules and regulations, which is why it’s important to seek financial advice if you are considering this option.  

If you would like to meet with one of our financial advisers to discuss the suitability of a re-contribution strategy for your situation, please don’t hesitate to contact us.