Withdrawing Your Super Series 6 - Case Study and Top Tips

I want to withdraw my superannuation. What do I need to consider?

Now it's time to put what we have discussed into practice while we look at a case study. At the end of the article we will share our Top Tips for  consideration before withdrawing your super...

Case Study:

Consider the example of Fred, who is aged 58 on 14th January 2013 (born 22/5/1954), and is fully retired. He has $148,564 in a retail superannuation account and wishes to withdraw this to pay off the mortgage on his house.

Fred has already received a pre-payment summary from his super fund, which shows that $102,208 is a taxed component, and the remaining $46,356 is tax free. The pre-payment summary also shows tax payable of $9,663, and Fred is unsure if this is correct.

On further review, we find that Fred had previously withdrawn $190,924, which was split between his taxable component ($131,356) and tax free component ($59,568).

Fred's income for the 2013 year is expected to be  $37,000.

Option #1 - withdraw $148,564 as lump sum (Fred's first option when he came to us)

Fred has a lifetime low rate threshhold of $175,000 (2013 year), and has previously withdrawn $131,356. This leaves $43,644 available. As the payment made to Fred in the current year exceeds this by $58,564 ($102,208-$43,644), then any excess will be taxed at 16.5%, giving $9,663 tax payable. Therefore the pre- payment summary shows the correct tax payable.

Option #2 - withdraw $63,438 as lump sum and balance after age 60 (A better option for Fred to consider)

Knowing that Fred has only $43,644 remaining on his low rate threshhold, Fred could elect to withdraw a smaller amount (up to $63,438) and wait until attaining age 60 to withdraw the remainder. There would be no tax payable on this option, saving $9,663 in tax.

Option #3 - commence pension, withdraw $63,438 as lump sum, and balance after age 60 (The best option for Fred)

Fred could commence a pension with his entire balance, and then withdraw the balance of his low rate threshhold per option #2. The lump sum could be used as part of the minimum pension requirement (subject to documentation put in place prior to the withdrawal). An actuary certificate would be required to determine the tax saving for the fund for the 2013 year. Further, Fred could withdraw the balance of his fund as a pension (or lump sum) between the dates 22/5/2014 (attains age 60) and 30/6/2014 (end of financial year) and pay no tax personally either. The fund would pay no tax on any of its earnings during this period. This option would save $9,663 in tax, plus the tax that would have been payable at the fund level on earnings during the 2013 and 2014 financial years.

The above strategy should not be considered personal advice and should used without seeking professional advice from a qualfied and licenced advisor.

Top tips to minimise tax payable

When thinking about withdrawing money from superannuation, keep in mind the following tips to ensure you minimise the tax consequences of withdrawing money from your self managed super fund:

1. Get in early. You can potentially withdraw money from super from age 55. Sensible planning around this date or preferably earlier will enable you to put strategies in place to save thousands in tax. If you have increased your tax free percentage prior to starting a pension, this could also mean you could withdraw far more than if you waited  until you needed the money.
2. Try to keep as much in super as possible until at least age 60. If possible prior to this you may be able to withdraw lump sums up to your low rate threshhold, but remember that it is all tax free after 60.
3. Consider the best place for your money. If you hold it in your personal name, marginal tax rates will apply to the income, however if you hold it through super, you will pay a maximum of 15% on earnings, and less if your fund is in pension.
4. Utilise your low rate threshhold.  If you have an unrestricted non-preserved balance, consider taking amounts above your minimum pension as lump sum payments up to your low rate threshhold. You need to nominate this in advance of taking the payment.
5. Take amounts above the minimum pension from the most tax-effective pension account. If you have numerous pensions running, it may be beneficial to withdraw any amount in excess of the minimum pension from the account with the highest tax free proportion.
6. If commencing a pension, try to increase the tax free component prior to starting a pension. There are various strategies for doing this, but the tax free percentage of a pension remains fixed for the life of the pension, meaning that any growth will increase the tax free amount as well.  If your balance is in accumulation, earnings only increase the taxable component.

As indicated in this series of articles, there are numberous things to consider when you want to withdraw money from your super fund. This case study serves to illustrate the amount of tax that can be saved with proper planning.

Tax is not the only consideration, and in the end it boils down to your personal circumstances as to which strategy is best for you.

General Advice Warning: Liability limited by a scheme approved under Professional Standards Legislation. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal taxation and financial advice prior to acting on this information. Opinions constitute our judgments at the time of issue and are subject to change. Neither, the Company or any of employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.