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Amanda asks: “ My friend has set up her super so she can take money out and then she puts it back in again, what is the point of this?”
Amanda’s friend is most likely taking money out of super and putting it back in so that she can save tax. This is called a ‘transition to retirement’ strategy. It’s a bit of a misnomer because the strategy sometimes isn’t about transitioning to retirement and is more about saving tax. Here’s how it works.
When you reach age 60 you are able to move your superannuation into an account called a Transition to Retirement Income Stream account. These accounts allow you to draw up to 10% of the balance every year in pension payments.
Often people will draw this money and at the same time they will increase their salary sacrifice contributions into superannuation. They can often structure the pension payment and the salary sacrifice in such a way that they get the same amount of income they were getting before, but with a reduced tax bill. This tax saving arises because the portion of their salary sacrificed into super is taxed at15% instead of their marginal tax rate and the foregone income can be replaced with pension payments which are tax free from age 60.
Implementing a TTR strategy can be complex, and it's crucial to seek financial advice from a qualified professional to ensure it aligns with your financial goals and complies with tax laws.
This blog contains general and factual information and does not take into account anyone's individual objectives, financial situation, needs or tax circumstances. We strongly recommend you contact one of our Advisers if you would like personal advice.
Redpoint Investment Holdings Pty Ltd (trading as CY Financial Advice), is a corporate authorised representative (No. 378099) of CY Financial Services (AFSL No. 509648)