While you certainly can withdraw your super and start to enjoy it, there are a few things you should be aware of before you do.
Can and should you withdraw your super?
Firstly, just because you’ve turned 60 isn’t enough in itself to qualify for access to your super. You need to make sure you fulfil one of the conditions for release first. One such condition does include being 60 or older, but you also need to retire from your job. There are also a few other ways in which you can access your super, you can read more about them here.
Once you have access to your super, depending on the rules of your fund you might be able to withdraw your entire super savings, but just because you can doesn’t necessarily mean that you should. Even after being allowed to access your super, the money in your fund will continue to be invested in order to seek a return, further increasing your savings. Depending on your specific circumstances, it may be better for you to only withdraw what you need and leave the remainder to grow. Of course, your situation will be unique, so make sure you consider your financial needs and objectives and seek independent advice.
How much will you be taxed?
If you do decide to withdraw a lump sum, you should also be aware of the tax implications for you. While super is taxed favourably, it’s not entirely tax free. A super fund includes both tax free and taxable elements, depending on how they were added to your account. Further complicating things, the taxable portion could have its tax paid while in your fund, or it could be taxed when you withdraw it.
The tax-free portion of your super will come from non-concessional contributions, those made from your take home pay that has already been taxed, as long as you don’t claim a tax deduction for those contributions. The taxable portion will typically make up the bulk of your fund, and includes everything else; your super guarantee contributions, salary sacrifices and any contributions you claimed a tax deduction on. If your fund has already paid the 15% tax on your taxable portion, it is called the taxed element, otherwise if you must pay the tax it is known as the untaxed element.
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The exact proportions of taxed/untaxed/tax-free super you have is determined when you make a withdrawal. Unfortunately, you cannot choose to only receive a payment from the tax-free portion of your fund. Your super fund will send you a payment summary showing the components of your lump sum withdrawal. You will need to include the untaxed element in your tax return for the applicable year, but not the taxed element or the tax-free component.
The amount of tax you owe on the untaxed element will generally be, either your marginal tax rate or 17%, whichever is lower. However, this concession is limited up to the untaxed plan cap amount of $1.445 million for 2017-2018. Any withdrawals of the untaxed element above this cap will be taxed at the top marginal tax rate of 49%.
For more on super and to compare funds, click here.