Pension Phase and Contribution Tax

I know when you convert you super into a pension phase you will no longer pay tax on any earnings and any pension distributed is not taxed...

My question comes, is there still the contribution tax when salary sacrificing amounts into your super WHILE it is in the pension phase??

Has anyone got any good links about info of transfering into the pension phase (or even transitional for retirement....)

Cheers

Hi Dave,

The answer is yes.

There are three tax structures which you are referring to.

Your marginal tax rate pays tax up to 46.5%.
Your super pays between 10% to 15% (depending on capital gains over 12 months or income/capital gains under 12 months)
Your pension pays tax at 0%

You cannot salary sacrifice straight into pension accounts, hence you still will pay 15% contributions tax as the salary sacrifice is going into superannuation.

Distributions from a age based/allocated pension account are taxable if you are under 60 years of age.

Here's a quick link Transition to Retirement: a new wealth creation strategy - CEO Forum Group

Cheers,

Dan

PS Before making an investment decision speak to your FPA registered Financial Planner.

ok, so theoretically im 61 (which im not)

I have $150k in my super and earn $40k a year, i transfer the $150k into a pension account and start drawing the minimum amount out (which i think is 4% of the balance per year). I then s/s my wage down to ~$16k a year (where the tax free threshold/low income rebate stops) so no income tax is payable by my personal. Therefore i am s/s $24000 a year to super.

So the 24k i am being charged the contribution tax ($2160). Does the remainder of this ~$22k earnings etc get taxed?

While everything in the $150k amount does not get taxed as its in the pension phase.

Have i got it correct (in general terms)?

Is there anyway i can get that $24k earnings to be tax free? Ie can i set up a pension for that 24k at the end of year 1 and draw the pension amount from it? Or can i (at the end of the year) combine that 24k into the original $150k pension balance???

Thanks for your help Dan


Cheers

ok, so theoretically im 61 (which im not) Oh, I was going to say Happy Birthday!

I have $150k in my super and earn $40k a year, i transfer the $150k into a pension account and start drawing the minimum amount out (which i think is 4% of the balance per year). I then s/s my wage down to ~$16k a year (where the tax free threshold/low income rebate stops) Can you live on $22k? ($16k plus (150k x 4%))so no income tax is payable by my personal. Therefore i am s/s $24000 a year to super.

So the 24k i am being charged the contribution tax ($2160)$24,000 x 15% = $3,600 not $2,160. Does the remainder of this ~$22k earnings etc get taxed? In super yes, in pension no, realistically, how much are you going to make on it 10%? $2,200 is only taxed at 15% for income which is $330 tax

While everything in the $150k amount does not get taxed as its in the pension phase.Correct

Have i got it correct (in general terms)?Just figure out your living expenses and keep an eye on your 15% tax on super contributions

Is there anyway i can get that $24k earnings to be tax free? Ie can i set up a pension for that 24k at the end of year 1 and draw the pension amount from it? Yes Or can i (at the end of the year) combine that 24k into the original $150k pension balance??? No, once an allocated pension is set up you can't add to it, you'd have to rollback your allocated pension back to super, combine the two accounts and then transfer back to the allocated pension phase

Thanks for your help Dan Your welcome, I hope these superannuation concepts help you and any other forum readers understand it better.


Cheers

Thanks Dan... hopefully this will be a constructive thread for people to review in the future....

Just a couple of extra points for people in future - between 55 & 64 the min is 4% from the balance and max is 10%. This is taken from the account balance AS AT 1 JULY of the financial year. (Ie think of how super has done over the past financial year, some people may only be able to take out much less next Fin Year)

Each pension requires a min balance of $10k (for australian super). they charge a $1 admin fee per week + other fees (per pension)

Couple of Questions - Is there any point in S/S between $16k and the $30k (next year $34k) 30% threshold. Seems to be you pay the same amount of tax (ie the 15%). You can then go and make an after tax contribution to your super fund (which attacts no contribution tax) and you would be in the same overall position?

Also say if im now 56, and want to start the same approach as above? If i turn it into a pension, no tax is paid on the earnings, and any money i draw gets a 15% tax rebate.

Now is this a 15% tax rebate of my entire income, of the tax i had to pay on the pension amount drawn or 15%, or it reduces you MTR by 15% (ie from 31.5% down to 16.5%) for the drawn pension amount or something else? This is something i havent found quite clear yet.

Appreciate the help Dan

Thanks Dan... hopefully this will be a constructive thread for people to review in the future....

Just a couple of extra points for people in future - between 55 & 64 the min is 4% from the balance and max is 10% Maximum only applies while your working between 55 and under 65(. This is taken from the account balance AS AT 1 JULY of the financial year. (Ie think of how super has done over the past financial year, some people may only be able to take out much less next Fin Year)

Each pension requires a min balance of $10k (for australian super). they charge a $1 admin fee per week + other fees (per pension)

Couple of Questions - Is there any point in S/S between $16k and the $30k (next year $34k) 30% threshold. Seems to be you pay the same amount of tax (ie the 15%) Actually there is a sliver of difference, called Medicare Levy being 1.5%, though in reality for locking it up is it worth saving the 1.5%?. You can then go and make an after tax contribution to your super fund (which attacts no contribution tax) and you would be in the same overall position?

Also say if im now 56, and want to start the same approach as above? If i turn it into a pension, no tax is paid on the earnings, and any money i draw gets a 15% tax rebate.

Now is this a 15% tax rebate of my entire income, of the tax i had to pay on the pension amount drawn or 15%, or it reduces you MTR by 15% (ie from 31.5% down to 16.5%) for the drawn pension amount or something else? This is something i havent found quite clear yet. For persons under age 60, the 15% rebate is attached to the taxable portion of your income stream, if you were drawing $10,000 and 50% of it was taxable, you would receive a tax offset/rebate of 15% on the $5,000 which is taxable.

Appreciate the help Dan

PS before making an investment decision speak to your FPA registered Financial Planner.