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- Tax
SMSF Withdrawal and Re-Contribution Strategy: Tax Benefits

By the time a self-managed superannuation fund (SMSF) member reaches age 60, it is prudent for them to have considered reducing or eliminating tax liabilities for when retirement commences. One way of doing this is to utilise a strategy of withdrawal and re-contribution.
In the past, the re-contribution strategy – used to reduce one’s retirement tax burden – was limited to SMSF members under 67 years of age. A legislative change effective from 1 July 2022 extends the re-contribution strategy to SMSF members beyond 67 years of age (and up to 75 years of age).
What is the re-contribution strategy and how does it work?
Upon retirement, the re-contribution strategy is a method of withdrawing a sum of your SMSF money and then contributing it back in to your SMSF as a non-concessional contribution, thus converting a previously taxable portion (or all, depending upon individual circumstances) of your SMSF holding to a tax-free component.
This re-contribution strategy would ideally constitute a part of your tax-and-pension retirement strategy. It will require you to have met full eligibility criteria around release of funds and around non-concessional contribution (NCC) caps.
A condition of release of funds after age 60 (and before age 75) is suitable for the re-contribution strategy because a lump sump withdrawal is received tax-free. When it is time to re-contribute your withdrawal, you will want the amount to fall within your NCC contribution cap limit. Your total superannuation balance contribution cap limit may be increased by using the bring-forward rule.
The bring-forward rule allows contributions limited to $110,000 or one year for those retirees with a total balance of $1.59 and $1.7 million in their superannuation fund; $220,000 for those retirees with a total balance of $1.48 and $1.59 million; and the maximum $330,000 for those retirees with a total balance below $1.48 million.
What are the benefits to you and your beneficiaries?
If you are under age 60, then the re-contribution strategy has the benefit of enabling you to get a better tax outcome on SMSF pensions when the time comes to draw upon your SMSF.
If you are over age 60, then the re-contribution strategy has the longer-term benefit of enabling you to reduce the tax on death benefit payouts to your adult children. Upon your death, your non-dependent children would be liable to pay tax on any taxable portion paid to them as your beneficiaries, such tax would be 15% plus Medicare Levy. Instead, with foresight to have created a tax-free SMSF holding, the tax payable would be 0%.
An additional benefit of the re-contribution strategy is that it might offer some protection in the event of future legislative changes to the way retirement funds are taxed, particularly where no tax concessions currently exist.
Factoring in the re-contribution strategy to your estate planning as part of an overall retirement plan might well be favourable, both in the foreseeable and long-term future, for you and your beneficiaries.
How can YML help?
Talk to our YML Super Solutions Team today to see how YML Group can assist you with your retirement strategy. For more information, view our website and contact us on (02) 8383 4444 or by using our Contact Us page on our website.