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The recontribution strategy

You might be aware that your super has two parts – a tax-free component, and a taxable component.

The taxable component is generally your before-tax contributions, like the money paid by your employer as part of the superannuation guarantee, as well as any salary sacrifice or personal deductible contributions you’ve made. If you withdraw this after the age of 60 its tax free, but it is potentially taxable depending on who gets your super after you die.

If you want to pass your super on to any non-dependents (like your adult children) they’ll usually have to pay tax on this component – which could be anywhere from 17 – 30%.

The good news is that you can reduce this taxable component, which means more money for your loved ones. If you meet the withdrawal conditions, you can withdraw money from you super as a tax-free lump sum. You can then redeposit it into your super as a non-concessional (after-tax) contribution. This will put your money into the tax-free component and maximise the money they will receive.

You can do this even if you’re fully retired, as thanks to the removal of the work test last year, anyone with less than $1.9m in all super and pension accounts can still contribute to super.

Meet John

John is 64 years old and has $350,000 in super. John has named his adult children as the beneficiaries of his super. As they’re classified as non-dependents under tax rules, they’ll need to pay tax on the taxable component when they inherit this money.

As John has retired and meets the withdrawal conditions, with the help of his Financial Planner, he implements a recontribution strategy.

This is where John chooses to take out $330,000 from his super and recontributes this into his account. By using the recontribution strategy, John’s super balance is now mostly made up of tax-free component.

if John passed away today an additional $47,685 tax saving will go to his loved ones as their inheritance.

This case study is for illustrative purposes only. Any advice contained in this communication, is general advice and not personal advice. Before making a decision about Aware Super, seek professional financial advice, consider your own circumstances and read our product disclosure statement and Target Market Determination. These documents are available on our website at aware.com.au/pds or call us and we’ll send you a copy. Aware Super financial planning services are provided by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL No. 238430) wholly owned by Aware Super. Issued by Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340), trustee of Aware Super (ABN 53 226 460 365).

There are things to consider when deciding if this strategy is right for you:

  • Who are my super beneficiaries and are they classified as non-dependents for tax purposes?
  • Am I able to withdraw my super now (have I met a ‘condition of release’)?
  • What tax consequences would there be if I was to access my super now, and would this reduce the benefit?
  • What are the limits on the amount I can contribute as an after-tax contribution?
  • Will this impact any Centrelink entitlements, now or in the future?
  • Do I have any health issues that could impact my life expectancy?
  • Do I prioritise adding new money to super to increase my account balance, or minimise any taxes to be incurred by my beneficiaries/estate?

Let’s look at a super rule you could take advantage of:

The bring forward rule

A great way to boost your super is by contributing extra from your take home, or after-tax pay, savings or inheritance.

If your total super balance is under $1.9 million, you can add $110,000 this financial year as a non-concessional (after-tax) contribution.

But there’s a special rule that lets you 'bring forward' up to two years' worth of contributions in a single year.

That means you can make up to three years’ worth of contributions (so $330,000) in one financial year. You need to be under 75 years old on 1 July of the financial year you make extra contributions in and have a total super balance of less than $1.68 million.

If you contribute the full $330,000 in one financial year, you’ll need to wait two financial years before you can make any more after-tax contributions.

Learn more about contribution caps and adding to super after tax

We can help 

Some of these super rules can get a little complicated and you should consider your broader retirement goals before making a decision. Our financial planners are experts who can help you decide which strategies are right for you, so you can maximise your retirement savings and income, and provide your loved ones with an inheritance.

Did you know you can pay for advice through your pension (or super) account when you get advice related to these accounts?

Over 95% of our members choose to pay this way. The first meeting will cost you nothing, so you can learn more how our financial planner can help before deciding what to do.

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Personal advice requires the provider to act in the client’s best interests and take into account the client’s circumstances. These rules do not apply to general advice. This communication contains general advice only and no personal advice. We have not taken into consideration any of your objectives, financial situation or needs or any information we hold about you when providing this general advice. Further this communication does not contain, and should not be read as containing, any recommendations to you in relation to our product. Before taking any action, you should consider whether the general advice contained in this communication is appropriate to you having regard to your circumstances and needs and seek appropriate professional advice if you think you need it. Contact us to make an appointment to see one of our representatives. Before making a decision about Aware Super you should read our product disclosure statement and Target Market Determination (TMD) available at aware.com.au/pds or call us and we’ll send you a copy. Issued by Aware Super Pty Ltd ABN 11 118 202 672, AFSL 293340, the trustee of Aware Super ABN 53 226 460 365. Financial planning services are provided by our wholly owned financial planning business Aware Financial Services Australia Limited, ABN 86 003 742 756, AFSL No. 238430. You should read their Financial Services Guide before making a decision.