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Understanding how superannuation works could help you feel better prepared. What is superannuation? How does superannuation work? Do you need to have a super fund? When can you access your super? What are concessional and non-concessional super contributions? How much super do you need to retire comfortably? Read more: Early access to super: Can I withdraw my super early? Concessional super contributions. Non-concessional super contributions. Related: A guide to superannuation splitting with your spouse.
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Enquire with Aussie. You could hold the same portfolio of shares, property, bonds, cash and other investments inside a super fund or outside super in your own name or in some other structure such as a family trust. These investments, whatever the ownership structure, earn income in the form of dividends, rent or interest and produce capital gains or losses when they are sold. The thing that sets super apart is its taxation status; despite constant government tinkering it is still the most tax-effective home for retirement savings.
That and the length of time your savings are left to grow in super generally produce a better return on your money in the long run than you would earn if you invested in comparable investments outside super.
Capital gains on the sale of assets inside super are also taxed at concessional rates. If you held the same investment outside super for more than 12 months, you would pay tax at your marginal rate on half the capital gain, or an effective tax rate of up to These are the tax rates that apply to investment returns inside super during accumulation phase. That is, while you are working and accumulating savings in super to be used in retirement.
Once you start withdrawing your savings as a lump sum, income stream or a mixture of both, your super is said to be in retirement phase, previously known as pension phase. You generally pay no tax on investment income or capital gains from super pensions, but there are exceptions. Previously they were tax free. However, these earnings are still exempt if you are over age Generally, you need to wait until you retire. The only exceptions are in cases of financial hardship, disability, terminal illness or death.
For more information, see SuperGuide article When can I access my super? All conditions of release explained. Otherwise, your preservation age will depend on when you were born. For Australians born before 1 July , preservation age was 55 but this is gradually increasing to 60 for younger age groups see table below.
When you reach your preservation age and retire you can withdraw your savings and accumulated earnings in a lump sum , as an income stream from a super pension , or a mix of the two. Withdrawals are usually tax free, but if you are younger than 60 there may be tax to pay. Then you must withdraw a minimum amount each year based on your age and account balance see table below. There is no maximum withdrawal amount, although most retirees tend to err on the side of caution for fear their money will run out.
Note : The federal government has halved the minimum pension drawdown rates for the —20, —21 and —22 financial years. The rates below show the temporary rates for —20 to —22, and the normal rates for preceding years.
The most common type of super pension is an account-based pension. However, if you reach your preservation age, are under 65 and still working you may be able to withdraw a portion of your super as a transition to retirement TTR pension.
Income from a TTR pension is tax free if you are aged 60 or more. You can keep an accumulation account open for as long as you like, even if you have retired. If you reach preservation age, retire and withdraw your super as a lump sum before you turn 60, you may have to pay tax. The rules are complex so anyone contemplating early retirement should seek independent financial advice from a retirement expert. If you die before all your super is withdrawn, your super fund pays a death benefit to your dependents, other nominated beneficiaries or your estate.
Death benefits include the balance of your super account plus an insurance benefit if you have been paying life insurance premiums from within your fund. You need to nominate who you want to receive your death benefits when you die. There are two types of nomination:.
In some cases, your fund may allow your spouse or other eligible beneficiary to continue receiving your super pension after you die. Super death benefits are made up of taxable and tax-paid components.
The amount of tax a beneficiary must pay depends on the component, whether they are a dependent for tax purposes and whether the super is taken as a lump sum or income stream.
You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement PDS or seek personal financial advice before making any investment decisions.
Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more. This is set to gradually rise over the coming years. Ordinary time earnings are what you generally earn for ordinary hours of work, including over-award payments, certain bonuses, allowances, and some paid leave.
Payments for overtime hours are generally not included in ordinary time earnings. You can also add your own money into your super savings, and sometimes the Australian Government puts money in too. Talk to your employer. Ask how often they are paying your super, into which fund they are paying it, and how much they are paying.
You can check your last Member statement from your super fund or contact the fund to confirm whether your employer has paid your super. If you still believe your employer is not paying the super you're entitled to, you can phone us on 13 10 Beware of promoters offering various plans to gain early access to your super savings before you retire. The promoters of these plans will tell you they can help you access your super savings for reasons such as paying off debts, buying a house or car, or even going on holiday.
These schemes are illegal and heavy penalties apply if you participate. One of my workmates told me about his friend, who can help me draw out some of my super money to help pay for the car.
Luckily, I checked the ATO website and found out it was illegal. I would have also faced fines and possibly jail time on top of that — a very expensive mistake. Most people can choose the super fund they want their contributions paid into.
They may need to request details of a stapled super fund from us if you do not nominate a super fund. A stapled super fund is an existing super account which is linked, or 'stapled', to an individual employee so that it follows them as they change jobs. We will notify you if your employer makes a stapled super fund request and the fund details we have provided.
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