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One-Off Re-Contribution Strategy before age 60

What is a Re-Contribution Strategy?

If you have clients under 60, a quick review of their members balance could reveal a strategy that should be jumped on.

Under the re-contribution strategy, your client will need to be considered retired from the workforce, under 60 years old and wanting to commence a pension.  Subsequent to your client retiring, they can withdraw up to $180,000, in which it will be treated as a lump sum payment.

Providing your client has never made a lump sum payment before, the amount withdrawn will be treated as a tax free payment that is offset against the members Lifetime Lump Sum Cap.  Each member has a lifetime lump sum cap of $185,000 (The lifetime cap is indexed annually), however, many members never take advantage of                                                                                          the tax concessions a member can receive when using the cap the correct way.

Upon the member making the lump sum payment, a non-concessional contribution can be made for the amount that was recently withdrawn (providing the amount does not exceed the member’s non-concessional contribution cap).  By making a large non-concessional contribution prior to commencing a pension, the tax free percentage of the member’s balance will increase, and therefore reducing the taxable component of the members balance.

For any member under 60 years old it is important to ensure their taxable component is reduced as much as possible prior to the commencement of a pension, as any taxable component of the pension withdrawn will be included in the member’s personal income tax return and taxed at their marginal rates.

Example

RE-CONTRIBUTION STRATEGY

 

As displayed in the example above, by completing the re-contribution strategy, the member will reduce their taxable income by $7,200! This will also result in a tax saving for your client in every subsequent year whilst they are under 60.

 For access to our help desk and training videos on SMSF technical issues, contact our team on 03-5226 3599 or email contact@superaa.com.au.  For other technical and business growth ideas, follow us on….

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