Your age and the type of income stream you receive determine how much tax you pay on your retirement income.
Reaching the age of 60 is a significant milestone, not just personally, but also financially. It marks a turning point in your superannuation journey, offering greater flexibility and potential tax benefits when accessing your retirement savings. This guide will delve into the intricacies of superannuation and taxation after 60, providing you with the knowledge to make informed decisions about your retirement income.
Tax-Free Super After 60: A General Rule
For most Australians, the good news is that accessing your superannuation after turning 60 generally comes with the perk of tax-free withdrawals. This means that the money you’ve accumulated throughout your working life can be used without incurring any additional tax burden. However, there are some nuances to consider, depending on your individual circumstances and the type of super fund you belong to.
Understanding Taxed vs. Untaxed Super Funds
Most Australians are members of taxed super funds. These funds contribute to the tax system by paying taxes on contributions and investment earnings. The benefit of this is that, after turning 60, withdrawals from these funds are tax-free, with a few exceptions.
On the other hand, a small number of public sector funds are classified as untaxed. These funds don’t pay taxes on contributions or investment earnings. While this may seem advantageous, it’s important to note that withdrawals from these funds are subject to a different tax treatment.
Exceptions to the Tax-Free Rule
While the general rule is that super withdrawals after 60 are tax-free, there are a few exceptions to be aware of:
- Capped Defined Benefit Income Streams: If your income from a capped defined benefit income stream exceeds the defined benefit income cap (currently $118,750 for the 2023-24 financial year), you will need to declare a portion of it on your tax return. This amount will be taxed at your marginal tax rate.
- Lump Sum Death Benefits Paid to Non-Dependants: If you receive a lump sum death benefit from a taxed super fund and you were not a tax dependant of the deceased, you may be subject to a maximum tax rate of 15%, plus the Medicare levy.
Tax Implications for Untaxed Super Funds
As mentioned earlier, withdrawals from untaxed super funds are subject to a different tax treatment. The amount of tax you pay depends on the type of benefit and your age. Here’s a breakdown:
| Type of Benefit | Maximum Tax Rate |
|---|---|
| Lump sum (up to untaxed plan cap) | 15% |
| Lump sum (above untaxed plan cap) | 45% |
| Terminal illness lump sum | Tax-free |
| Income stream | Marginal rate with 10% offset |
| Death benefit lump sum (tax dependant) | Tax-free |
| Death benefit lump sum (non-dependant) | 30% |
Tax on Super Income Streams
If you choose to receive your superannuation as an income stream, the tax implications will vary depending on your age and the type of income stream.
Age 60 and Over:
- Account-Based Pensions: For most people, income from account-based pensions after age 60 is tax-free.
- Annuities: Annuities purchased with after-tax contributions are taxed as regular income, with a deduction for the return of capital.
Age 55 to 59:
- Income Stream: Your income stream will be partially taxed, with a portion taxed at your marginal rate and the rest tax-free.
Age 55 and Under:
- Income Stream: Accessing super before age 55 is generally only possible in cases of permanent incapacity. The tax treatment is similar to the 55-59 age group.
Seeking Professional Advice
Navigating the complexities of superannuation and taxation can be challenging. If you have any doubts or require personalized guidance, seeking professional advice from a financial advisor or tax professional is highly recommended. They can help you understand your specific situation, optimize your retirement income strategy, and ensure you’re making informed decisions about your financial future.
Reaching the age of 60 opens up new possibilities for accessing your superannuation, often with the benefit of tax-free withdrawals. However, it’s crucial to understand the nuances of the tax system and how it applies to different super fund types and withdrawal options. By staying informed and seeking professional advice when needed, you can ensure a smooth transition into retirement and make the most of your hard-earned savings.
How super income streams are taxed
Income from super can be an:
- pension based on an account; a stream of consistent payments from your superannuation
- Annuities: a guaranteed income for the remainder of your life or for a predetermined amount of time
Tax on transition to retirement income streams
You can access your super while working if you have a transition to retirement (TTR) income stream. You must be at least 55 or 60 years old to be eligible for one of these pensions.
Find out your preservation age.
You are able to withdraw up to 2010% of the balance for each financial year. You cant withdraw it as a lump sum.
Depending on your age, you pay the same amount of tax as on other super income streams. Investment returns on TTR pensions are subject to taxation up until the year 2015, in the same way as a super accumulation fund.