Adding to your spouse’s superannuation account is a great way to grow your shared retirement savings. In some situations, it can also help you maximise some of the strategies that may be appropriate to save tax and even optimise any Age Pension entitlements. In this article, we will have a look at a few reasons that you may want to boost your spouse’s super.
Maximising the opportunity to contribute to super
The option to carry forward unused concessional contributions is restricted to those with a total super balance below $500,000 on 30 June of the prior financial year. If one spouse’s superannuation balance is coming close to the threshold and they are at risk of losing this opportunity, contribution splitting can be used to transfer funds out of their account into that of the partner with a lower balance, retaining the option for longer.
Also, individuals with a total super balance above the general transfer balance cap (currently $1.9 million) cannot add further non-concessional contributions to super. Spouse contribution splitting and/or withdrawals after retirement can reduce the balance of a partner that would otherwise exceed this limit, so they can retain the option to make non-concessional contributions.
Equalising Spouse Superannuation balances
At retirement, the transfer balance cap places a per-person limit on the amount that can be transferred into the tax-free retirement phase. Equalising balances can maximise the total a couple can transfer if only one of them would otherwise have a balance above the cap (currently $1.9 million).
The planned additional tax on earnings of super balances above $3 million is another incentive to equalise balances if either partner expects to accumulate a balance higher than the threshold. If you can both remain below the cap, the new tax will not apply.
If your combined balance will be more than $6 million, there is no way to avoid exceeding the cap except withdrawing the excess funds from super after retiring. However, the tax liability can be minimised by ensuring you both have at least $3 million in your accounts. This ensures the additional tax applies to the smallest proportion of your balance possible.
Enhancing Age Pension
When one partner is older than the other, retaining super in the account of the younger spouse can enhance Age Pension entitlements while the younger spouse is under the Age Pension age (currently 67).Bottom of Form
Using contribution splitting and/or cashing benefits from the older spouse’s account to contribute to their partner’s super reduces the amount counted in Centrelink’s income and asset tests because the superannuation balance of a person under the pension age is not assessable.
With a lower amount being assessed in means tests, the older partner may receive a higher rate of Age pension or qualify for a pension that would not otherwise be payable. Of course the assets and income tests still apply to other assets and income so this needs to be carefully assessed to see if it is appropriate.
Topping up your spouse’s super can be a beneficial strategy for both of you but there are some considerations that may apply to your situation. If you’d like to explore this further, please get in touch.
General Advice Warning - This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial or tax adviser before making any investment decisions.
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