The recent changes to superannuation rules effective from 1 July this year, have made the recontribution strategy more accessible for retirees. Changes to the work test have enabled individuals aged 67-75 to be able to make non concessional contributions to super without having to meet the work test.
A recontribution strategy involves withdrawing some or all of your superannuation balance and recontributing back into your super account as a non concessional contribution. The amount withdrawn is paid to you in accordance with the proportioning rules (relating to your existing tax free and taxable components). When recontributed to super, the amount is allocated to the tax free component. This strategy may convert some or all of your taxable component to a tax free component.
So why would you do this?
There are a number of benefits and these may include:
Reduction in the tax paid by non dependant beneficiaries (such as your adult children) in the event of death
For those aged between preservation age and age 60, increasing the tax free proportion results in less tax being paid in pension payments if made prior to age 60
Equalising super balances for couples where the amount withdrawn is contributed to your spouses account to enable better management of the transfer balance cap or total super balance.
If one spouse is younger than the other, there may be benefits withdrawing from the older spouse and contributing to the younger spouse when considering social security benefits.
There are also a number of important considerations, such as:
Ensure that one of the conditions of release is being met
For those turning 75, amounts being recontributed must be received by the super fund no later than 28 days after the end of the month you turn 75.
Tax components cannot be separated, the amount withdrawn will be paid in proportion to the existing components already in the fund.
Transactions costs will apply
Before utilising the bring forward rules, consider whether any other contribution strategies will apply or be required within the next 2 years
Check your Total Super balance prior to June 30
This is a complex area of advice and should only be considered with professional advice to ensure that eligibility rules can be met and that it is an appropriate strategy when considered in conjunction with all other financial goals.