The below Q & A was originally posted in The Australian
Q My wife is 60 and intends to continue working two days a week earning about $35,000pa. She has $90,000 in superannuation and has inherited $300,000. What’s best; to keep that in term deposits or maximise superannuation opportunities? She wishes access to lump sum withdrawals in due course to help our children buy property.
A Superannuation is a tax structure not a product. With a few exceptions any investment you own outside of Superannuation, you can own within Superannuation, including Term Deposits. If your Super fund does not provide this flexibility, perhaps look around to find one that does.
You can make personal (Non-Concessional) Superannuation contributions of $150,000 per Financial Year or $450,000 every 3 years. After age 65 there are additional restrictions on contributing.
As your wife is 60, her Superannuation can be transitioned to an Allocated Pension and the earnings and the income drawn from the fund are tax free. If she invests into Superannuation and not transition to an Allocated Pension, the earnings within the fund would be taxed at 15%. By comparison, her marginal Income Tax rate will be 34% from 1 July. So under either option she will pay less tax than she currently does leaving it outside the Superannuation system.
The downside of an Allocated Pension whilst she continues to work is that she can only access 10% of the funds invested as a lump sum without meeting a condition of release. So if she needs more than $39,000 as a lump sum in a tax year, don’t put that amount into an Allocated Pension unless she is planning to meet a condition of release in the near future.
In relation to helping the children buy property, ensure that your own Retirement Planning needs are met first. Your children have the rest of their lives to accumulate their wealth. Rather than gifting a lump sum to the children as a deposit, consider matching savings or providing a monthly contribution to their mortgage. Control the capital and distribute the income.
You need to weigh up the restrictions in Superannuation of accessing funds for the benefit of paying less tax. There are a multitude of strategies available to maximize your savings, get advice on which is best for you.