NICK BRUINING Q+A: Pros and cons of contributing into another super, rather than yours

Question

I’m 65 and my wife is 62. We’re still both working, albeit part-time. I recently received an inheritance and am considering contributing some of the money into superannuation. In order to balance our super accounts, is there any benefit in contributing into my wife’s super rather than mine?

Answer

There are a number of advantages and very few disadvantages. There are two areas where you might benefit, namely tax and Centrelink.

If your wife’s taxable income for the year is less than $37,000 and you use part of the money to make a contribution to her fund, you can benefit from a spouse super contribution offset of 18 per cent on deposits of up to $3000.

This could boost your own tax refund by up to $540 if $3000 of the payment to her super is made by you.

Next, if your wife is doing any work and this represents 10 per cent or more of her taxable income for the year, a $1000 contribution on her part would attract the government’s free $500 co-contribution payment — provided her total income for the year is less than $47,488.

The co-contribution shades out at the rate of 3.33¢ per dollar until your wife’s income reaches $62,488.

Next, and depending on her own taxable income, she could make a concessional (tax deductible) contribution of up to $32,500 this financial year and greatly reduce any tax liability she has and potentially boost her own tax refund.

If your wife hasn’t made use of the full concessional contribution caps in the past five years and her total super balance is under $500,000, she can apply the unused amounts and claim it this year.

The total this year is $175,000. From this, subtract any personal tax-deductible contributions she has made, amounts salary-sacrificed and any compulsory employer contributions over the five-year period.

On the tax front, make sure that if she claims a tax deduction that it doesn’t bring her below $22,866. This is the “magic” figure where below, you don’t pay tax anyway.

Any amount claimed as a concessional contribution is subject to at least 15 per cent contributions tax. Any monies held in super accumulation phase are exempt from Centrelink means-testing until you reach pension age, or 67.

Potentially, with money in her super you could claim a full or part-pension at 67. The more money in your wife’s super, the less included in means-testing until your wife also reaches 67.

Question

On the advice of a financial adviser, I invested $12,250 in a funeral fund. After five years, my original investment is now worth only $12,815.52. Can you please advise how I can redeem the account and reinvest it with another fund.

Answer

Funeral funds are a special type of investment fund that do not operate like conventional investments.

In exchange for generous Centrelink concessions, certain rules must be strictly adhered to including access conditions.

Monies invested in these funds are exempt from Centrelink means-testing on condition that they can only be accessed at death.

This exemption is highly attractive for a person who receives a part-pension or just misses out because of the asset test.

Every $1000 invested by an asset-tested pensioner increases their fortnightly pension by $3 a fortnight until the full rate of pension is reached.

This is effectively a 7.8 per cent “return on investment”, courtesy of Centrelink. Usually, the asset test concession is the reason that funeral funds are recommended.

Many funeral funds offer a range of investment options, including shares, which would exhibit volatility in the short-term but reasonable longer-term returns. Sometimes, you can change the investment mix along the way.

Many offer a capital guaranteed benefit in much the same way as a bank account, but in this case you cannot change the investment mix once the fund has been established.

Unfortunately, the access rules mean that you can’t cash-in the fund or roll it over to another.

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