‘Should I use the recontribution strategy to make more of my super non-taxable?’

Sep 27, 2020
Noel Whittaker discusses the implications and rewards surrounding shuffling around retirement funds. Source: Getty.

Q: I am 61 years old and retired. I am currently living off savings and rental income from an investment property, which is sufficient for my daily needs.But I’m now thinking of opening an account-based pension to save the 15 per cent tax on the investment earnings in my superannuation. The majority of my super is a taxable component that I’ll leave to my adult kids on my death. I believe the death benefit will be taxed at 17 per cent, though, because they’re not my dependants.

I have two questions. Is it wise to open an account-based pension for the reasons I’ve outlined? And, I can access additional funds of $300,000 so should I use the recontribution strategy or add this sum to my accumulation account before I move to an account-based pension? (My super balance will still be below the $1.6 million cap even with the $300,000 top-up.)

A: Basically, your question is whether you should convert your superannuation, which is currently in accumulation mode, into pension mode because it would then be in a zero-tax environment. I see no reason not to do this. You cannot contribute to a super fund in pension mode, however, which means you will need to have part of your fund in pension mode and part in accumulation mode. The recontribution method you suggest would be fantastic – you simply withdraw $300,000 from your super tax-free now and then make a non-concessional contribution of $300,000. This will convert a big chunk of the money in the taxable component to non-taxable. Also, you should be aware that your concern about the death taxes are easily addressed – just make sure your attorney has instructions to withdraw all your superannuation and place the money in your bank account as soon as you believe that death is imminent.

Q: I’m a woman aged 70 and work 24 hours a fortnight as a registered nurse. I own my own $1.2 million home and have an account-based pension that I take the compulsory minimum drawdown from worth $626 a month at 2.5 per cent of the balance. My super, my savings and a term deposit are worth in total $500,000. I receive a part-Age Pension of $446 a fortnight.I feel that if I sold my house to downsize, I would lose a lot of money by having to pay stamp duty on another home and through losing pension due to the balance of money I’d be left with after selling my home and buying another, less expensive one. Can I make up that loss with other investments and if so, which ones should I consider?

A: You really need to take expert advice on these matters. You could put money into super using the downsizing rules but it would still count for Centrelink purposes so there is no joy there. And as you point out, the costs of downsizing may well be $100,000 or more, which is a big chunk of your capital. It really gets back to a lifestyle choice. If you do make the move, you could think about using the capital you free up from the sale of your property to purchase a lifetime income stream whereby only 60 per cent of the asset value is assessed by Centrelink but it really is a matter of getting an independent financial adviser to do the sums for you.

If you want to know more about retirement income or about downsizing in retirement, watch our first masterclass with financial guru Noel Whittaker, downsizing expert and author Rachel Lane and the Economics Editor of The Australian and co-host of Sky Business Weekend Adam Creighton. Click here to watch the video.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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