How to top-up your post-retirement super fund
So you’re at the stage where you’ve reached your preservation age (from 55 to 60) and are ready to retire. It’s time to think about what you’re going to do with your super, which is now finally accessible. With standard super funds there are three ways you can get your super out:
- As a lump sum
- As a retirement income stream (e.g. a monthly payment such as an account based pension)
- A combination of both
However, if you are part of a self-managed super fund one entitlement available for members who retire and start a pension before the age of 65 is being able to make non-concessional or after tax contributions to super until they reach 65. Beyond 65 a super fund is closed to all contributions for those who have retired.
There is a range of situations appropriate to topping up your post-retirement super with after-tax contributions. It could be the proceeds of selling your home and downsizing, the windfall of an inheritance, or you could sell an asset that you no longer need.
Instead of putting your money in the bank, a self-managed super fund allows such amounts to be consolidated into the retirement income arrangement that super in the pension phase offers, along with its associated tax advantages.
If you want to make contributions to a fund that has already shifted into pension mode you need to stop any pension, add the new contributions and then start a new pension with the combined amounts. This formal procedure is necessary because super rules don’t allow contributions to be simply added to an existing pension account balance for tax reasons.
Although a pension account is not taxed, it is made up of super components that were either from a concessionally taxed source like contributions from an employer or self-employment along with the investment earnings they have generated during the pre-pension period. Or they came from a tax-free source such as after-tax contributions, government co-contributions or tax-free proceeds from the sale of a business. When a pension starts these components are worked out as proportions of the account balance. For example if 20 per cent of a member’s account balance is from after-tax amounts it will be classified as a 20 per cent tax-free pension even though the pension income will be totally tax-free for those older than 60. The proportions become relevant when a new contribution is added.