How to make the most of your retirement income When you move into retirement, a…
Super Contributions Splitting is a strategy that generally allows you to split up to 85% of your employer super contributions and personal deductible contributions with your spouse whereas a Spouse Super Contribution involves making a contribution to a spouse’s super fund to build their retirement savings.
Check out the below examples to show how the strategies differ:
Erica and Steve are both 57 years of age. Erica works as a graphic designer earning $110,000 p.a., while Steve has just retired. Erica has made additional salary sacrifice contributions into super over the years and accumulated an extra $250,000 in her account (taxable component).
Erica now plans to retire and use the $250,000 super benefit to pay for a property purchase. As Erica is under 60 years of age she pays tax on the withdrawal. Amounts up to the ‘low rate cap’ of $200,000 (2017/2018) are taxed at a zero rate of tax, but the balance of $50,000 is taxed at 17%, or $8,500.
If Erica and Steve had taken advantage of contributions splitting, they would not have paid any tax on the withdrawal. Steve could have set up an account to receive half of Erica’s yearly salary sacrifice contributions. They would have accumulated $125,000 in each account, rather than $250,000 in Erica’s account alone.
At retirement, Erica and Steve could then have withdrawn the $125,000 from each account. As the first $200,000 is taxed at a zero rate of tax, they would not pay any tax on their withdrawals, saving them $8,500 in tax payable, and giving them more money to pay for their property purchase.
- An interest charge also applies to account for the deferral of tax. Individuals can elect to withdraw up to 85% of their excess concessional contributions from their superannuation. Depending upon the amount effectively withdrawn, excess concessional contributions may also count towards the non-concessional contribution cap.
Craig is 35 years of age and currently earns $95,000 p.a. Each year he salary sacrifices to super to fully utilise his concessional contribution limit.
He is married to Angela, also 35 years of age, a stay at home mum who does not earn any income. Craig receives an annual bonus of $5,000 (net of tax).
Craig speaks to a financial adviser to assess his options. His adviser suggests he contribute the $5,000 into Angela’s super fund as a spouse contribution.
By doing this, Craig receives a $540 tax offset for the first $3,000 he contributes. Not only does he save on tax, but this also helps Craig and Angela build their retirement savings.
- Assuming they haven’t triggered the bring forward in the previous two financial years. A contribution work test applies where contributions are made for someone 65 years or older.
To discuss whether you and your spouse could benefit from Contribution Splitting or Spouse Contributions, call Newcastle Financial Planning Group today on 4032 7934 to book a complimentary meeting with one of our specialist Financial Advisers.
Disclaimer: This information is of a general nature and has been prepared without taking account of your personal needs, financial circumstances or objectives. Before acting on this information you should consider whether the information is appropriate for you having regard to your personal needs, financial circumstances or objectives. This information is current at March 2018 but may be subject to change. The case study and effective tax rate are hypothetical and are not meant to illustrate the circumstances of any particular individual. Before acting on this information, you should consider the appropriateness of the information, having regard to your needs, financial circumstances and objectives. This information is our interpretation of the law and does not represent tax advice. Please see your tax adviser for advice taking into account your individual circumstances. RI/SCCPD/0618 RI Advice Group Pty Ltd | ABN 23 001 774 125 AFSL 238429