A withdrawal and recontributions strategy can be a valuable method of mitigating the legislative risk to which an SMSF is exposed, a specialist adviser has said.
According to Cooper Partners Financial Services director Jemma Sanderson, equalising member balances can ensure no member of an SMSF is left vulnerable to legislative changes that could disadvantage them due to the fact they have a low asset balance and can be achieved through the use of a withdrawal and recontribution strategy.
Sanderson referred to the introduction of the transfer balance cap in 2017, which represented a significant amendment to the framework established by the Simpler Super reforms in 2007, as an example of her theory.
“Simpler Super that came into effect from 1 July 2007 [meant] for people over 60 it became irrelevant whose name the super was in because if you were over 60, it all came out tax-free,” she explained to delegates at the recent Self-managed Independent Superannuation Funds Association SMSF Virtual Forum 2020.
“As a result, we were less concerned about equalising accounts and it was more getting as much money into super as we can for a couple, and if dad ended up with more than mum, it was almost irrelevant.
“However, we [experienced] 2017 and the introduction of the transfer balance cap and of course that then made it very important to try and maximise that $1.6 million cap [for each member].
“So what a withdrawal and recontribution strategy can be helpful in is obviously trying to shift some of those benefits from invariably dad to mum. My experience is dad tends to have more money in super than mum, so we’d move some of those benefits around, and then by trying to equalise those accounts as well we’re hedging against those potential future legislative changes too.
“So equalising [superannuation balances] between spouses is one of the big-ticket items here.”
During the same presentation, Sanderson warned advisers to be wary of which assets they use in a withdrawal and recontribution strategy to ensure its proper execution.
