When it comes to planning for retirement, one of the most important things you need to consider is how you’ll make the most of your superannuation savings. As a part of that process, you may come across a strategy called ‘re-contribution’ – but what exactly is it, and how can it benefit you? In this blog post, we’ll dive deep into the concept of the re-contribution strategy for super, and help you evaluate if it’s the right choice for you.
First off – what is the re-contribution strategy for super? Put simply, it involves withdrawing funds from your super account and then reinvesting the funds back into your account at a later stage. This is done in order to convert taxable components of the fund into non-taxable components, which can help you reduce (or in some cases, eliminate) future tax liabilities.
One of the biggest benefits of the re-contribution strategy is that it allows you to transfer wealth between generations in a tax-effective way. By withdrawing taxable components of your super fund and then reinvesting it into your account, you can shift that wealth to your beneficiaries without a hefty tax bill. This can be a great way to help your children or grandchildren manage their finances after you’re gone.
Another benefit of the re-contribution strategy is that it can potentially help you avoid the government’s ‘death tax’. If you pass away with a balance in your super fund, the government will generally tax this balance at a rate of up to 17{9f22a6c9ed12e16e5983216e35523626546e516042fd2ddc7e378f3fecf7b312}. However, if you’ve implemented a re-contribution strategy, you may be able to reduce or avoid this tax altogether.
Of course, as with any financial strategy, there are some risks and downsides to consider. For one, withdrawing funds from your super account can impact your overall retirement savings, particularly if you’re withdrawing money early and missing out on potential investment gains. Furthermore, the process of implementing a re-contribution strategy can be complex, and requires careful planning and professional advice to ensure that you’re doing things correctly.
In summary, the re-contribution strategy for super can be a powerful tool to help you maximise your retirement savings and manage your tax liabilities. By withdrawing taxable funds from your super account and reinvesting them as non-taxable components, you may be able to reduce your tax bill, avoid the ‘death tax’, and even transfer wealth to the next generation. However, it’s important to weigh up the risks and downsides of the strategy before rushing to implement it. Seek professional advice and do your research to make an informed decision that’s right for your financial future.
