It is very common for couples to have differing superannuation balances. This is especially if one has been employed in a part-time capacity, temporarily taken time from work to care for the family, or differ in age, occupation and income.
There are some opportunities for couples to equalise their personal superannuation accounts. This helps to ensure they maximise their available retirement savings and income in retirement. This strategy is referred to as a spouse equalisation strategy.
Why should I make Spouse Equalization Contributions?
One of the main reasons a couple would implement an equalisation strategy is due to the transfer balance cap (TBC) that was introduced on July 1, 2017.
The transfer balance cap limits individuals to an allocation of $1.6 million of their superannuation to pension phase. To maximise this tax-free income in retirement a couple could have a combined total of up to $3.2 million, but in reality, this generally differs as one spouse’s balance is closer to the $1.6 million transfer balance cap while their partner may have considerably less inside their superfund.
Spousal equalisation contributions can ensure that a couple maximise the amount they will have in pension phase.
How do I make Spouse Equalization Contributions?
Generally, with this type of scenario the most straightforward way to make a spousal contribution is for the spouse with the larger superfund balance to withdraw a lump sum benefit and recontribute this amount to their spouses superfund as a non-concessional contribution by the receiving spouse. There are a number of superannuation rules that need to be taken into consideration.
Other spousal contribution opportunities are called spousal contribution splitting, allowing one spouse to split up to 85 per cent of concessional contributions made to their superannuation in the previous financial year and request they be transferred, rolled over or allotted to their spouse’s super account.
Things to consider when making Spouse Equalization Contributions:
- Have you met a condition of release to make a withdrawal from your superfund?
- If you are aged between 65 and 74, you must satisfy the work test to be eligible, working for a minimum of 40 hours in any 30 day consecutive day period.
- Non-concessional contributions limits are restricted to $100,000 per annum, per individual. If the bring forward rule is applied an individual can advance contributions of up to $300,000 in a single year – either all at once or as several large contributions. If the bring forward rule is activated and the bring forward cap is reached, then you will be unable to make any further non-concessional contributions in the following two financial years.
- If the receiving spouse’s total super balance is greater than $1.6 million, these contributions are not possible.
- If there is a largely differing age gap between the couple, it is sometimes preferable for the older spouse who will access their superannuation earlier to build up their super account at the expense of the younger spouse in the short term. This enables earlier access to larger amounts of the couple’s super savings. The younger spouse also has more time to address that initial imbalance.
- In regards to contribution splitting, the receiving spouse must be either under 65 or, if over their preservation age, still gainfully employed.
There are other areas which may need to be taken into consideration and it is always a good idea to seek professional advice from a qualified adviser.
General advice warning
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