Since change is an inevitable part of Australia’s superannuation system, taxpayers should always be aware of and on the lookout for super strategies that they can take advantage of.
One such strategy, which is not only straightforward but also highly-effective, is splitting superannuation with your spouse.
Splitting super with your spouse involves one partner (usually the older and higher earner) instructing their super fund once a year to transfer 85 per cent of their concessional (before-tax) contributions made that year to their partner’s super account. The receiving spouse must be less than the preservation age that applies to them, or aged between their preservation age and 65 years, and not retired. The partner splitting their contributions can be of any age. Non-concessional contributions (after-tax) cannot be transferred.
The spouse-splitting strategy can be extremely useful and can create many advantages. For example, it can enable a couple to maximise the amount that could be withdrawn tax-free if either of them ceased working between their preservation age and 60.
It can also help a couple to withdraw more from their accounts. Individuals aged between 55 and 60 can only withdraw the first $185,000 of the taxable component tax-free, therefore, having two large funds means a couple could withdraw $370,000 tax-free between them.
If a couple found it to be appropriate, the older contributing spouse could also work until they were 75 to continue the spouse-splitting strategy if the younger spouse passed the work test. This would keep the older spouse in a lower marginal tax bracket, who would then be able to fund some household expenses through tax- free withdrawals from the receiving spouse’s super.
Another potential benefit in moving one spouse’s superannuation to their partner’s account is that it provides protection against future changes that may restrict lump sum withdrawals or create a tax on higher balances. Two separate superannuation accounts also offer more flexibility than keeping the majority of superannuation savings in the name of just one partner.