Why you should consider splitting super with your spouse

LET'S think about a simple, and highly effective strategy; splitting your superannuation with your spouse.

It works like this.  Once a year you can instruct your fund to transfer to your spouse 85% of your concessional contributions made in that year. Your spouse must be under 55 if retired, or between 55 and 65 if not retired.

Think about Mike, aged 52. He earns $145,000 a year and is contributing $35,000 a year to superannuation, due to a combination of the compulsory employer superannuation and his own voluntary sacrificed contributions.

He already has over $400,000 in superannuation but his wife Helen, who has a casual job, has little. His contribution of $35,000 will still be liable for the 15 per cent contributions tax, but he can ask his fund to put $29,750 of it into her superannuation account. If he keeps up this strategy until he is 67, Helen would end up with over $830,000 in her own superannuation account if her fund earned 9% per annum.

Super splitting doesn't get Mike out of the 15% contributions tax, but it still has advantages. First, it would enable the couple to maximise the amount that could be withdrawn tax free if either one, or both, both stopped work between age 55 and 60.

Unlimited withdrawals are only tax free for those aged 60 or more. Those aged between 55 and 60 can withdraw only the first $185,000 of the taxable component tax free. By having two large funds they could withdraw $370,000 tax free between them.

The strategy can be especially useful if there is a significant age difference. 

If Helen was older than Mike she would reach age 55 or 60 before him and so be able to enjoy the tax and access benefits that come at those ages. 

If she was younger than him, their Centrelink benefits could be maximised, as money in superannuation is not counted until the owner reaches pensionable age. Suppose Mike turned 69 when she was 61.

He could cash out a large chunk of his super tax free and put up to $540,000 into super in her name as a non-concessional contribution and, subject to other assets, get a part aged pension and all the benefits that go with it.  

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