As couples approach retirement, they may notice significant differences in their superannuation balances. Addressing this imbalance can be crucial for effective retirement planning and maximising financial benefits.
Impact of Individual Superannuation Balances
An individual's Total Superannuation Balance (TSB) as of 30 June each year influences their eligibility for various superannuation strategies in the subsequent financial year. Key strategies affected by the TSB include:
Non-Concessional Contributions: Permitting such contributions when the TSB is below $1.9 million.
Carry-Forward Provisions: Allowing larger concessional contributions when the TSB is under $500,000.
Tax Deductions for Personal Contributions: Enabling individuals aged 67–74 to claim deductions when their TSB is below $300,000.
Government Age Pension Considerations
For many, the Government Age Pension forms a vital part of retirement income. The assets test includes superannuation for individuals of pension age. If there's a notable age difference between spouses, allocating more superannuation to the younger spouse can potentially enhance Age Pension entitlements upon retirement.
Mechanics of Spousal Contribution Splitting
Spousal contribution splitting allows the transfer of up to 85% of one’s annual concessional contributions to their spouse's superannuation account. Key aspects include:
Eligible Contributions: Comprising superannuation guarantee amounts, salary sacrifice contributions, and tax-deductible personal contributions.
Maximum Transfer Limit: Generally capped at $25,500 annually, representing 85% of the $30,000 concessional contributions cap for individuals.
Timing of Contributions: Only contributions from the previous financial year are eligible for splitting.
Age Criteria for Receiving Spouse: The receiving spouse must be under 65 years old, or between 60 and 64 and not retired.
Contribution Caps: The split is treated as a rollover and does not impact the receiving spouse's contribution caps.
It's essential to verify whether your superannuation fund offers spousal contribution splitting, as it's not a mandatory feature across all funds.
Application Process
Applications for contribution splitting should be submitted after the conclusion of the financial year in which the contributions were made. If you intend to roll over or withdraw your entire superannuation balance before the end of the financial year, you can apply to split the contributions within that same year.
Conclusion
Spousal contribution splitting serves as a strategic tool for couples aiming to balance their superannuation accounts and optimise retirement outcomes. It's advisable to assess your individual circumstances and seek professional advice to ensure this strategy aligns with your long-term financial objectives.
To find out more about how we can assist with building and protecting your wealth through retirement strategies such as spousal contribution splitting, contact us on 1300 022 267 or visit Accord My Wealth.