There is nothing more certain than Death & Taxes

Wait a minute, there is tax on my super when I die? WTF?

Whilst you are able to make superannuation withdrawals over age 60 tax free, did you know that tax may apply if certain beneficiaries inherit your funds after your death?

Superannuation contains both taxable and tax free components. Taxable components accrue through employer and salary sacrificed contributions (concessional). Tax free components accrue through after tax contributions (non-concessional).

'Dependants' under tax law which commonly include a spouse or child under 18 years old can receive all of your super tax free.

However, adult children may be subject to 17% tax on the taxable component.

How can you avoid this 'inheritance tax'?

You can recycle your super from taxable to tax free components through a 'cash out, re-contribution' strategy.

How does it work?

1. When you are eligible to do so, you withdraw a lump sum from super. Withdrawals from super draw proportionately from your taxable and tax free components. Withdrawals from super at age 60 are tax free to you.
2. Re-contribute the funds to super as a non-concessional contribution. Keep in mind the contribution caps.

This strategy has recently helped one of my clients to convert their super from majority taxable to majority tax free. Meaning a potential tax saving for their children when inheriting the funds down the track of up to $130,000!