You can receive your super as a super income stream, super lump sum or a combination of both. The super withdrawal option that you choose may affect the amount of tax you pay. Here is information from the Australian Tax Office (ATO) website –
Super lump sum
If your fund allows it, you may be able to withdraw some or all of your super in a single payment. This payment is called a ‘lump sum’.
You may be able to withdraw your super in several lump sums. However, if you set up a regular payment from your super it is considered an income stream.
If you take a lump sum out of your super, the money is no longer considered to be super. If you invest the money, the money that you earn on those investments will not be taxed as super.
Super income stream
You receive a super income stream as a series of regular payments from your super fund (paid at least annually). The payments must be made over an identifiable period of time and meet the minimum payment standards.
Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.
Your super income stream will stop:
- when there is no money left in your super account;
- minimum annual payment is not made;
- commutation (when you convert a super income stream into a super lump sum);
- when you die, unless you have a dependant beneficiary who is automatically entitled to receive the income stream.
Transfer balance cap – New from 1 July 2017
As part of the 2016 Budget, some changes were introduced to make superannuation fairer and more sustainable.
The transfer balance cap applies to the total amount of superannuation that has been transferred into the retirement phase. It does not matter how many accounts you hold these balances in.
The amount of the cap will start at $1.6 million, and will be indexed periodically in $100,000 increments in line with CPI. The amount of indexation you will be entitled to will be calculated proportionally based on the amount of your available cap space. If, at any time, you meet or exceed your cap, you will not be entitled to indexation.
You will be able to make multiple transfers into the retirement phase as long as you have available cap space.
Each individual with superannuation interests in the retirement phase has a personal transfer balance cap. The cap cannot be shared with any other person. To determine your position with respect to the transfer balance cap, you have a transfer balance account. This tracks the net amounts you have transferred to the retirement phase.
The transfer balance account works in a similar way to a bank account. Amounts you transfer to, or are otherwise entitled to receive, from the retirement phase give rise to a credit (increase) in you transfer balance account. Certain transfers out of the retirement phase give rise to a debit (decrease) in your transfer balance account.
The transfer balance cap will affect you if you are currently receiving a pension or annuity income stream that is close to or in excess of the cap, or start a retirement phase income stream after 1 July 2017.
If you are currently receiving a pension or annuity, you will need to speak to your superannuation providers about the likely value of your income stream as at 30 June 2017. Check how you can reduce the value of your income stream before 1 July 2017 to ensure you do not have an excess.
If you will commence a retirement phase income stream after 1 July 2017, you will need to:
- ensure that your account based pensions and annuities do not exceed the $1.6 million transfer balance cap
- include income from certain lifetime pensions (usually paid from a defined benefit fund) in your income tax return if you are over 60, and may need to pay more tax
- ensure that if you have a mix of pension types, with a total value exceeding $1.6 million, you reduce any account based pensions to reduce the total value of all your pensions below the transfer balance cap.
Although there is now a limit on the amount of assets you can transfer into a tax-free retirement phase account, this does not affect the amount of money that you can have in the accumulation phase of a superannuation fund. Any amount of superannuation you have in your fund above the $1.6 million amount can be retained in the accumulation phase and/or be taken as lump sum payments.
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