With the chaos of everyday family life, retirement planning isn’t often at the top of the priority list.
As we head into a new financial year, it’s worth spending time now getting your superannuation in order to help prepare for long-term financial security.
When couples are thinking about retirement planning, it is a good idea to look at the superannuation balances of both spouses to help ensure you get the most out of retirement.
For couples where one spouse has a lower income (perhaps after taking time off or being stay-at-home), it may be worth considering super splitting.
Super splitting is one way to share superannuation growth between spouses, allowing certain contributions to be split from spouse to spouse – often a very effective way to help grow a spouse’s super.
Who should consider super splitting?
A super splitting strategy is most suitable for couples younger than 65 with one high-income earning member and one low-income earning or non-working member.
To be eligible to make super contributions to your spouse, you have to be under the age of 65 or have reached preservation but are not yet retired.
The Benefits of Super-Splitting
So, how will splitting super benefit you in the long term? Well, splitting contributions can have numerous benefits for tax planning and retirement planning, which can ultimately leave more in your pocket. It can help:
- Even out super balances between partners and keep both balances under thresholds imposed by the Australian Taxation Office (ATO).
- Provide a younger member of a couple with access to tax-free money from their super by splitting contributions with the older member, meaning you can access funds earlier than expected.
- An older member reduce their super balance by splitting with a younger member, helping them to qualify for a higher age pension.
- Spouses to take advantage of the carry forward concessional contribution rules to maximise their before-tax contributions prior to retirement by keeping both members’ balances under $500,000.
- Both spouses to stay under the $1.7 million Transfer Balance Cap, which would maximise the amount of money their funds can hold tax-free in retirement.
What are the rules around super splitting?
Contributions you make to your spouse are called ‘taxed splittable contributions’, and these can be made up from:
- Employer contributions
- Salary sacrifice contributions
- Personal contributions where a deduction has been claimed.
Taxed splittable contributions means you can split the lesser of:
- 85% of the taxed splittable contributions made in that financial year, or;
- Your concessional contribution cap for the financial year ($25,000 for 2020/2021).
What should you do next?
Seek Professional Financial Advice
It’s important to remember that super splitting might not be appropriate for everyone. If you are considering it, your first step should be to seek professional advice from a licenced adviser.
Check your Superannuation Fund
While most super funds allow splitting, including most Self-Managed Super Funds (SMSFs) and APRA regulated funds, not all funds will. To double-check if yours does, you should look at your fund’s trust deed or contact your super fund directly.
Check the fine print
It’s also worth checking with your super fund administrators whether this strategy will incur any fees.
Don’t ignore your super admin
Whether you go ahead with super-splitting or not, the most important thing is you’ve made progress with your retirement planning. Finding time to look at your super and make plans is always a good idea and future-you will thank you!
While all reasonable care is taken in the preparation of this article, to the extent allowed by legislation Findex (Aust) Pty Ltd ABN 84 006 466 351 and Findex Financial Advice Pty Ltd ABN 51 060 092 631 AFSL No. 238244 (Findex) accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice.
Findex assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material.
With over 20 years’ experience in public practice, Kathy leads the specialist superannuation division at Findex and has a specific focus and expertise in this area. Kathy enjoys providing personalised service and total financial solutions for all her clients’ needs.