Depending on your situation, a superannuation recontribution strategy may offer a range of benefits, including significant tax savings.
There’s been a significant rise in the popularity of recontribution strategies with those under 75 – regardless of their working status – since July 2022, when the work test was removed from superannuation contributions laws.
What is a Recontribution Strategy?
As the name implies, a recontribution strategy refers to the withdrawal of a lump sum of money from your super balance and returning it as an eligible non-concessional (after-tax) contribution.
You can remove part, or all your superannuation and make contributions in a lump sum, or in increments over a longer period. According to your situation, you may make a range of eligible non-concessional contributions, such as downsizer contributions. Contributions may be made to your balance, or that of your spouse.
Recontribution Strategy Benefits
The objective of a recontribution strategy is to optimise either the tax-free component of a superannuation fund, or a death benefit. This may reduce tax on:
- Lump sum death benefits paid to non-tax dependants
- Death benefit pensions paid to tax dependents, where the deceased and beneficiary are less than 60 years of age.
Similar to splitting contributions, recontribution strategies may also improve the management of super balances between couples, which can:
- of preservingMaximise the balance in concessionally taxed retirement-phase pensions
- Manage total superannuation balances (TSB) with the aim to preserve eligibility to continue contributions
- Maximise social security benefits if a spouse is not yet eligible for the Aged Pension
- Streamline management of death benefits by recontributing into own superannuation interest.
Important Considerations
Eligibility to withdraw and contribute to your superannuation balance is critical for you to be able to implement are contribution strategy. Therefore, reaching preservation age or conditions of release, is, generally, a pre-requisite.
It’s important to remember that re-contribution can affect how your taxable income is calculated. This can lead you to pay more taxes upfront.
Key important factors impacting eligibility and benefits of a re-contribution strategy include;
Access To Super
- Are benefits unrestricted or non-preserved?
- Can a full condition of release be satisfied?
- Does the Trust Deed restrict access
Eligibility to Contribute
- Total Super Balance (TSB)
- Age
- Non-concessional contributions made in previous years
- Are you currently in a bring-forward period?
Tax Implications
- Tax implications may occur if the applicant is less than 60 years old
- Tax implications may affect those 60 who are receiving an untaxed (taxed) component
Contribution Caps
- Recontribution amounts count towards non-concessional contribution caps.
- An individual’s TSB does impact the number of non-concessional contributions (NCC) that can be recontributed under the NCCcap.
Conditions of Release
- The individual has reached preservation age and permanently retired
- Cease of gainful employment on, or after reaching the age of 60
- Age 65
- Permanent incapacity due to either medical or physical ill health, impacting the ability to be gainfully employed
- A certified terminal medical condition that is likely to end in death in 24 months
As with any financial strategy, the recontribution strategy must be considered in light of individual circumstances and executed properly to maximise opportunities and avoid breach of compliance. Therefore, consult an SMSF specialist or financial adviser whilst investigating the options available to maximise your retirement savings.
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