At Sapphire Accountants we provide quality services in regards to Self Managed Superannuation. For expert advice and to plan for your retirement come and speak to Paul Searle or one of our Self Managed Superannuation experts.
A Few Things you can do with your Self Managed Superannuation Fund
1. Salary sacrifice to super
Salary sacrifice can provide a number of advantages for your retirement savings in a tax effective way. An effective salary sacrifice arrangement is where you forgo some or all of your salary and your employer makes an equivalent amount as a contribution to superannuation for you. The earlier you commence your salary sacrifice the greater the amount you can expect to accumulate for your retirement.
2. Transition to retirement pensions
You can commence a transition to retirement pension once you reach your preservation age, currently 55. It allows you to continue to work and receive a tax effective pension at the same time. If you commence a transition to retirement pension as an account based pension you will have a very flexible pension which is eligible for tax offsets equal to 15% of the taxed part of the pension. Of course, once you reach 60 your pension is totally tax free.
Before you commence your transition to retirement pension it is critical to make your plans early. The trend now is to look at getting larger amounts into super well before reaching 55. Employer contributions combined with salary sacrifice and an ability to make non-deductible contributions to super will grow benefits quicker.
Remembering the maximum draw down is 10% of your balance. Therefore planning your needs early is crucial.
3. Tax free pensions from age 60
One of the great benefits of Simple Super is that pensions you receive from most superannuation funds, such as self-managed superannuation funds, are tax free once you reach age 60. When combined with the advantages of salary sacrifice and transition to retirement pensions you can use many of the superannuation changes to your advantage.
4. Recontributions strategy
One way of maximising the tax free amount of your pension is to use the recontributions strategy. This comes in handy if you have non-preserved super and are under 60 and or, for estate planning purposes, if you are 60 or older and your death benefits will be paid to non-dependant adult children causing a possible tax liability of 16.5% on the taxable component.
The recontribution strategy involves withdrawing a non-preserved lump sum, which includes a taxable component, from your superannuation fund. As the name suggests you recontribute the amount you have withdrawn back to the fund as a non-deductible contribution. The advantage is that if your pension is taxable it will result in a greater tax free amount or if your death benefit from superannuation is paid to a non-dependant adult child then the payment will include a higher tax free amount. You need to ensure that any amount recontributed to superannuation does not exceed the contribution caps for non-deductible contributions.
It is worthwhile to obtain planning advice to ensure you do not get caught by any hidden traps when using a recontribution strategy.
5. No compulsory withdrawal rules
From 10 May 2007 the superannuation rules were changed so that there is no compulsory requirement to draw down all of your superannuation savings at any time, except on your death. You can leave your superannuation savings in your fund for as long as you like or can draw it down as a lump sum or pension when you qualify. This means your retirement savings can remain in a tax concessional environment until you really need them.
6. Concessional and non-concessional contributions
The superannuation changes have meant that there is no limit to the amount of tax deductible (concessional) or non-deductible (non-concessional) contributions that can be made to superannuation. However, there is a limit placed on the amount of contributions that are taxed at concessional rates in the fund.
Where a person is under age 50, the first $25,000 of the concessional contribution is taxed at 15% in the superannuation fund. For anyone 50 or older the amount is $50,000. If concessional contributions greater than the cap are made then any excess is taxed at penalty rates.
If non-deductible contributions are made to the fund then the first $150,000 is tax free in the fund. However, for anyone who is under age 65 non-deductible contributions of $450,000 can be made to the fund tax free over a three year set period.
Co-contributions are a great idea for any employee or self-employed person who qualifies and earns a total income of less than $58,980, including reportable fringe benefits. To be eligible you must earn at least 10% of your income from employment as an employee and/or self-employment. If you earn less than 10% of your income from employment and/or self-employment you will not qualify for the co-contribution. For example, you would not qualify if you earn nearly all of your income from investments or as a pension.
The compounding effect of earnings can mean that if you qualify for the maximum co-contribution when you are age 20 then by the time you are age 60 it may accumulate to about $37,500. This assumes the net return on your investment is 7% p.a.
The earlier you take advantage of the co-contribution the greater the amount you may have in retirement because of the effect of compound interest.