When it comes to super, turning 60 brings about a significant shift. It implies that you can more easily and, for the majority of people, tax-free withdraw your super benefits.
This is a significant departure from your tax situation if you take benefits before turning 60, as you will typically owe taxes on a portion of your super benefit.
In order to assist you in comprehending a complicated and perplexing aspect of super, SuperGuide has compiled a summary of the guidelines for benefit withdrawal on or after your 60th birthday.
Understanding super tax-free status after 60 is crucial for retirees planning their finances. This guide explores the nuances of superannuation taxation, helping you navigate your financial future with confidence.
Keywords: Superannuation, tax-free, 60, retirement, income, lump sum, preservation age, taxable component, untaxed component
Reaching the age of 60 marks a significant milestone, not just in life but also in superannuation. Super becomes tax-free after 60, offering retirees greater financial flexibility and security. This guide delves into the intricacies of superannuation taxation, empowering you to make informed decisions about your retirement savings.
Superannuation Taxation Overview
Superannuation contributions and earnings are taxed at different stages:
- Contributions:
- Employer contributions: Taxed at 15% in the super fund.
- Salary sacrifice contributions: Taxed at 15% in the super fund.
- Concessional contributions (before-tax): Taxed at 15% in the super fund.
- Non-concessional contributions (after-tax): No tax payable.
- Investment earnings: Taxed at 15% in the super fund.
- Withdrawals:
- Under preservation age: Taxed according to the withdrawal type and age.
- Between preservation age and 60: Taxed according to the withdrawal type, age, and taxable component (taxed and untaxed elements).
- 60 and over: Tax-free, with some exceptions for death benefit income streams and exceeding caps.
Super Tax-Free Status after 60
Upon reaching 60, your super becomes tax-free, meaning you won’t pay tax on withdrawals, including:
- Lump sum withdrawals: The entire amount is tax-free.
- Income stream withdrawals: The entire amount is tax-free, except for death benefit income streams where the deceased was under 60.
- Defined benefit income streams: Tax-free if you were 60 or older when the deceased passed away.
Exceptions to Super Tax-Free Status after 60
While super is generally tax-free after 60, there are a few exceptions:
- Death benefit income streams: If the deceased was under 60, the income stream may be taxable, depending on your age and preservation age.
- Exceeding caps: If your super balance exceeds certain caps, such as the defined benefit income cap or low rate cap, some withdrawals may be taxed.
- Illegal super access: If you access your super before meeting a condition of release, the entire amount is taxable, regardless of your age.
Understanding Taxable Components in Super
Your super may contain both tax-free and taxable components, depending on the contributions made and whether tax was paid on them.
- Tax-free component: Typically from after-tax contributions or rollovers from taxed accounts.
- Taxable component:
- Taxed element: Contributions taxed in the super fund (15%).
- Untaxed element: Contributions not taxed in the super fund (e.g., public sector contributions).
Understanding the components is crucial for determining the tax implications of your withdrawals. Your super fund can provide information on the composition of your super.
Tax Implications for Different Withdrawal Scenarios
The tax implications of your super withdrawals depend on several factors:
- Your age: Different tax rules apply depending on whether you’re under your preservation age, between your preservation age and 60, or 60 or older.
- Withdrawal type: Lump sum or income stream withdrawals are taxed differently.
- Taxable components: The proportion of taxed and untaxed elements in your super affects the tax payable on withdrawals.
For detailed information on tax rates for different scenarios, refer to the ATO website or consult a financial advisor.
Superannuation becomes tax-free after 60, offering significant benefits to retirees. By understanding the nuances of super taxation and the exceptions to tax-free status, you can plan your retirement finances effectively and maximize your financial well-being.
Frequently Asked Questions
Q: When does super become tax-free?
A: Super becomes tax-free when you reach the age of 60, with some exceptions.
Q: Are all super withdrawals tax-free after 60?
A: Yes, all super withdrawals are tax-free after 60, except for death benefit income streams where the deceased was under 60 and exceeding certain caps.
Q: How do I know if my super has taxable components?
A: Your super fund can provide information on the composition of your super, indicating the proportion of tax-free and taxable components.
Q: How are taxable components taxed in super withdrawals?
A: The tax payable on taxable components depends on your age, withdrawal type, and whether the component was taxed or untaxed in the super fund.
Q: Where can I find more information on superannuation taxation?
A: The Australian Taxation Office (ATO) website provides comprehensive information on superannuation taxation. You can also consult a financial advisor for personalized advice.
Income from a capped defined benefit income stream
You will have to report income on your tax return if you receive income from capped defined benefit income streams that exceeds the defined benefit income cap ($118,750 in 2023–24). The amount that you must declare is 2050 percent of the portion of your annual payment that exceeds the cap. This amount will be taxed at your marginal tax rate.
A capped defined benefit income stream is:
- Any lifetime superannuation pension
- A lifetime annuity that existed prior to 1 July 2017
- An annuity or life expectancy pension that started before July 1, 2017
- A market-linked annuity or pension that was in place before July 1st, 2017
You might have received the income stream initially, or you might have started receiving it after the original owner passed away. Many of these sources of income are not defined benefits, despite their name.
Payments from taxed funds
Most people are members of taxed super funds. These funds pay tax on contributions and investment earnings. After you turn 60, withdrawals from these funds are tax-free, with the exception of the circumstances listed below: