Preservation age super withdrawal is an option once you reach the preservation age and are eligible for a condition of release. The preservation age applies to ages 55-60, in proportion to your birth date. If you happen to be in between the preservation age and 59, the superannuation benefit is reserved until you retire. There is no restriction when it comes to accessing your superannuation benefits in between the preservation age and 59 once you have retired. Under such circumstances, a superannuation benefit is accessible in the form of a lump sum or pension withdrawal.
What is retirement in between preservation age and 59?
For members in between the preservation age and 59, retirement entails ceasing employment where you have no plans of working again either part-time or full-time. You must declare it to your superannuation and SMSF by the time you stop working.While it is expected that members between the preservation age and 59 have no plans of working again, that may not always be the case. It doesn’t change the Member’s position of being retired while allowing them to access their superannuation benefit while considering that they are returning to work. That comes with the condition that a member between the preservation age and 59 will not work for more than 10 hours per week any time in the future and a signed declaration. It’s crucial to remember that minimizing your work hours to 10 with the same job or employer isn’t considered “retired.”
Pension withdrawals between the preservation age and 59 for retired members
If you happen to belong to the preservation age and 59 or “retired,” you’d have the choice to commence a Pension Income Stream through a Self-managed Super Fund. A pension entails that cash is periodically transferred from your superannuation bank account to your private bank account to provide for your living costs. There are a couple of pension types that you can begin with an SMSF – Transition to Retirement Pension or TRIP and Simple Account Based Pension. If you’re in between the preservation age and 59 or deemed retire, you only have Simple Account Based Pension as an option. Should you choose to opt for a Simple Account Based Pension through your Self-managed Super Fund, and are between the preservation age and 59 (retired), then you should get a minimum pension income every year. If you’re in between the preservation age and 59 (retired), you can access all super benefits as desired.
Pension Withdrawals Taxation between the Preservation Age and 59
Tax can be paid with Pension withdrawals by members between the preservation age and 509. It’s crucial to understand that a Super Benefit has two components – Taxable and Tax-Free Component. The Tax-Free component is generally derived from tax personal non-concessional contributed by you through time.
The taxable component generally has a concessional contribution made by you through time, including salary sacrifice contributions and employer contributions. Pension withdrawals should be paid within the same lines as Taxable and Tax-Free Components of a member’s super benefit. Such a requirement is called the “Proportioning Rule.” With this “Proportioning Rule,” the procedure to measure the Pension withdrawals tax paid towards a member between the preservation age and 59 include the following:
- First Step: Determining your Super Benefit’s Tax-Free Component
- Second Step: Determining your Super Benefit’s Taxable Component
- Third Step: Total Tax-Free and Taxable Components
- Fourth Step: Calculating Tax-Free Component percentage equivalent to the First Step divided by the Third Step
- Fifth Step: Calculating Taxable Component percentage equivalent to the second step divided by the third step
- Sixth step: Multiplying pension payments through Tax-Free percentage in the fourth step with the result being tax-free.
- Seventh step: Multiplying the Pension payment with the Taxable percentage in the fifth step with the result being taxed at a member’s tax rate of less than 15% the pension rebate.
Pension Timing Withdrawals is crucial while turning 60
There is no payable tax on pension withdrawals once you reach the age of 60, although several tax can be paid through pension withdrawals conducted in between the preservation age and 59. This entails that once you turn 60 in a specific financial year, it could be financially advantageous to comply with pension withdrawals until you reach 60.
Let’s say you’ve acquired a Pension of $1,000,000 on July 1, 2019, and are 59 during the time. By March 10, 2020, you’d turn 60. Your Superannuation benefit is composed of a 100% taxable. You’ve chosen to take the minimum 4& pension of your benefit – $40,000. Should the minimum $40,000 pension amount be taken before March 10, 2020, that’s during the age of 59; then such Pension is taxed at a marginal tax rate of less than 15% the pension rebate. Let’s say you’re following the 39% marginal tax rate; you’d be quantifiable over the $40,000 Pension withdrawn at 39%, which would result in a $15,000 tax. Provided that you also get a 15% “Pension” Rebate” over the taxable component of the Pension withdrawn at $60,000, the tax accountability will be reduced at $9,600.This entails that you’d be paying a $9,600 amount over the $40,000 Pension withdrawal under such circumstances. Also, by deferring access to the Pension withdrawal after March 20,000, wherein you are turning 60, the Pension withdrawn becomes tax-free. The pension withdrawal’s timing, in this case, would result in a $9,600 tax savings.
Tax Savings while commencing on a Pension
Provided that the minimum tax is payable on pension withdrawals in between the preservation age and 59, it can still be plausible to opt for an SABP even between the preservation age and 59 or retired, provided that you pay no tax over the earnings and capital gains of your Super Benefits. But you must evaluate your circumstances to figure out whether a pension should be opted for.