An SMSF technical specialist has described the withdrawal and recontribution of retirement savings moneies as the most powerful contribution strategy that exists in the Australian superannuation system.
“That might be overselling it from a concept point of view, but what it stands for and what it has done historically is [remarkable],” SuperGuardian education manager Tim Miller told delegates at his firm’s strategy workshop held in Sydney yesterday.
The strategy continues to offer significant tax advantages to SMSF members, with its maximum effect now being in the estate planning arena, Miller added.
To that end, he pointed out the strategy offers its greatest gain when an SMSF death benefit is likely to be paid out to a non-tax dependant.
“If it’s paid to a non-tax dependant, then the tax-free and taxable proportions of that benefit become more relevant because these [recipients] might be paying 15 per cent [tax] on the taxable component,” he said.
“So the recontribution strategy is largely about saving that tax in the event that there are still benefits when [the remaining members of an SMSF pass away].”
According to Miller, because the strategy requires an individual to make contributions back into the superannuation system after money an SMSF member has drawn down from their balance has been gifted to them, it is very important to initiate the process as soon as possible.
Further, he said the pending legislation that will allow people aged 65 and 66 to trigger the bring-forward non-concessional contribution provision will open up the strategy to more individuals.
“That’s why we hope the bring-forward changes occur and at [ages] 65 and 66 we can utilise the full $330,000 [non-concessional contributions] bring-forward amount because that just gives us greater capacity [to take advantage of this strategy],” he noted.