Nick Bruining Q+A: Congrats! You’ve nailed the ideal grand retirement plan

Question

I am 72 years old, retired with an account-based pension balance of $720,000, with about 80 per cent a taxable component. I also have an accumulation account with a balance of $180,000.

My spouse is 68 and has a super balance of about $65,000 and still working.

My plan is to withdraw $175,000 from my accumulative account and recontribute back $120,000 into the same account. I then want to put the extra $55,000 into my spouse’s account as a non-concessional contribution for this financial year.

Then, next financial year I would close the ABP and contribute $390,000 under the bring-forward rule into my accumulation account.

I want to then roll over to an ABP as I have no intention of working again.

Meanwhile, the balance of $330,000 is contributed to my spouse’s accumulation account under the bring-forward rule.

My spouse will finally retire in one or two years and can then roll the balance into a pension-based account.

Does all of this sound right?

Answer

In a nutshell, yes. You have correctly identified that being under the age of 75 years — and with a total superannuation balance of less than about $1.7 million — you can make a non-concessional contribution to super.

Having not made use of your existing bring-forward allowance of $360,000 within the past three years, you can contribute up to the current non-concessional limit of $120,000.

Note that when you make the $120,000 withdrawal, 80 per cent of that figure — or $96,000 — will be the taxable component and $24,000 tax-free. You can’t “target” just the taxable part.

On July 1, the new non-concessional contribution cap of $130,000 a year applies and, using the three-year bring forward rule, then means you can make a one-off contribution of $390,000 to your accumulation account.

You may not be aware that, depending on your spouse’s taxable income, you may be able to receive further tax incentives.

If your spouse’s taxable income is less than $40,000 a year, you can designate up to $3000 of your contribution as a spouse contribution. This attracts a tax offset, or credit, of 18 per cent — or up to $540.

If you are still a taxpayer, this credit can reduce your overall tax liability and perhaps boost your refund if you still pay tax.

Equally, if your spouse is still working in the year you make the payment and the income is less than about $48,000, a $1000 payment made by your spouse would attract a $500 government co-contribution to super.

Question

I can’t seem to get a straight answer from anyone — my superannuation fund, financial planners or the Australian Taxation Office.

I am a member of the West State super scheme, which is an untaxed fund operated by the State Government.

If I have met a condition of release by reaching the age of 60 and then decide to roll over my benefit to a normal, taxed scheme, would I be liable to pay the extra Division 293 tax on the untaxed part of my rollover?

That is, instead of paying 15 per cent, would I be liable for 30 per cent tax?

Answer

Firstly, you do not satisfy a condition of release merely by turning 60.

The condition of release is satisfied if you “cease gainful employment since reaching 60”. That means you would need to cease a job of some description, since reaching 60. Fortunately, you can cease any job — not just your main job.

The Division 293 tax you mention is an additional contributions tax payable on concessional contributions when adjusted taxable income is $250,000 or more.

ATI includes your gross employment income, plus voluntary concessional contributions, plus reportable fringe benefits and an add-back of any investment losses such as those you would receive through negative gearing arrangements.

The ATI does not include “untaxed components”, nor is the transferred money regarded as a voluntary concessional contribution to super.

On that basis, the extra contributions tax is not payable and, indeed, the 15 per cent tax is paid by the receiving super fund, not you.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association