Retirement should be a time of relaxation, not financial stress, but understanding the tax implications on your retirement income can sometimes be confusing. Here’s a breakdown to help you navigate this important aspect of your golden years.
Tax-Free Super Income at Age 60 and Beyond
If you’re over 60, good news! Most superannuation income streams from taxed funds are tax-free. This means your account-based pensions and annuities generally won’t incur any tax once you’ve reached this age milestone.
Types of Super Income Streams
When it comes to income streams from your superannuation, you have a couple of options:
- Account-Based Pension: Regular payments drawn from your super fund.
- Annuity: A stable, fixed income for life or a set time period.
What’s Taxable vs. What’s Tax-Free
Your super income is divided into taxable and tax-free components:
- Taxable:
- Employer contributions
- Salary sacrificed contributions
- Personal contributions claimed as tax deductions
- Tax-Free:
- After-tax contributions
- Government co-contributions
For Ages 55 to 59
For those between 55 and 59, your super income consists of two parts:
- Taxable: Taxed at your marginal rate with a 15% offset.
- Tax-Free: Completely exempt from further taxation.
Accessing Super Before Age 55
Generally, accessing your super before age 55 is restricted unless due to permanent incapacity or severe financial hardship. In such cases, the tax treatment mirrors that of ages 55 to 59, with income split between taxable and tax-free components.
Tax on Various Super Fund Types
Defined Benefit Super Fund
Before accessing your benefits, your fund will inform you how much of your entitlement is taxable versus tax-free.
Untaxed Super Funds
Some government funds, known as ‘untaxed funds,’ defer taxation until you access the money. Be sure to check with your fund or consult a financial advisor Melbourne for specific details.
Self-Managed Super Funds (SMSFs)
The way you access your SMSF depends on its trust deed. Taxes apply based on the fund’s rules and your age.
Transition to Retirement (TTR) Income Streams
If you’re working but have reached preservation age (between 55 and 60), you can supplement your income with a TTR pension. You can withdraw up to 10% of the balance annually, taxed similarly to other super income streams. Investment returns in TTR pensions are taxed up to 15%.
Non-Super Annuities
Annuities purchased with non-super money provide fixed income. This income, after deducting capital repayments, is taxed at your marginal rate.
Find out more about tax on super on the Australian Taxation Office (ATO) website. Services Australia’s Financial Information Service offers free seminars on topics such as retirement income and pension options – or feel free to contact us for more help.
To learn more about financial security, speak to our qualified team of financial planners and wealth creation experts.
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