Transition to Retirement is a strategy for people to consider when they are 55 and over and meet a condition of release and here we look at and what are the steps and advantages when you have a self-managed super fund (SMSF).
For the details about Transition to Retirement (TTR or TRIS – Transition to Retirement Income Stream) see HERE.
STEPS to set up Transition to Retirement (TTR/TRIS)
When used as a tax strategy, if your income tax rate is more than 15% then TTR could provide benefits while still building your super, and maintain your current income, but reduce the tax you pay.
- Check the SMSF Trust Deed allows a TTR strategy (to avoid contravention).
- Calculate the results on several amounts to salary sacrifice and the tax due on the lower salary – this is usually the next tax bracket below your current salary, ie sacrifice enough to bring your gross salary into the next lower tax bracket.
- Prepare member letter to apply to the Trustees to start a pension/income stream account with some of your super monies, leaving some in accumulation account, or start another accumulation account for employer contributions to your fund. Record the Trustee Resolution of Minute of the Meeting that tabled the TRIS application.
- Arrange the salary sacrifice with your employer and draw a regular pension payment from the super. The salalry sacrificed amount will be PAYG taxed at a reduced rate (concessional), which means less tax when going into the fund instead of your marginal rate, and PAYG will need to be paid by the super fund when paying you.
- Check the calculations to determine what amounts work best for your case. Always seek professional assistance to ensure laws are not breached and that there is really a tax advantage.
- Tax on your pension/income stream and salary should overall be less than your current tax (PAYG).
- Overall take-home pay can be maintained, while saving tax.
- No tax on investment earnings in the pension account. Only tax on the Income Stream you take, when in your hands.
- You can potentially be increasing your super faster than the employer %.
- Increased super can sometimes mean you could reduce your work hours, and receive a similar income.
If you would like a no-obligation discussion of possible strategies, give Paul a call 0407 361 596
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