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Risk of excess contributions tax

Super fund members saving for retirement should remain vigilant about the risk of excess contributions tax.

The amount of contributions an individual makes into their super each financial year is subject to contributions caps. If the contributions exceed the caps, the level of contributions above the cap is known as ‘excess contributions.’

The amount of the contributions cap and how much extra tax an individual needs to pay depends on their age and whether the contributions are concessional or non-concessional.

The law has recently changed to allow super fund members to withdraw the excess concessional contributions made from July 2013, rather than pay the excess tax. Withdrawn concessional contributions are taxed at a member’s marginal tax rate.

However, super fund members should keep in mind that the law regarding excess non-concessional contributions has not changed.  These contributions are taxed at the highest marginal rate and cannot be withdrawn to avoid the excess contributions tax.

Posted on 14 March '14 by , under Tax.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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