The Tax Office And Superannuation funds, How Are They Taxed?
I remember working as Human Resources Manager of a medium contractors company and seeing the faces of new workers when they received their first pay check. Their eager eyes scanned the sheet looking for the magic number that would tell them how much they would take home and how much they could spend at the pub on the way home. The order of priorities changed depending on the worker in question. They would invariably lay their eyes first on the larger gross sum and then with tears nearly in their eyes hover over to the net wage once social security, super and tax were discounted.
The company I worked at was situated in Gibraltar very close to the Spanish border. Many workers would stream from Spain in search of higher wages. They soon realized that the wages were not the only thing that was higher in Gibraltar, taxes could hold their own. The word passed on quickly and the first or maybe second question workers would ask would be what will my net wage be. Of course that would depend on their age, married status, number of kids and other factors that regulated their tax code. Skilled workers would invariably ask for a minimum take home wage independent of their tax code and other costs. And who could blame them.
When you are calculating how much you will receive from your super fund that is a great question, how much will I get after tax and costs.
The answer as with the construction workers is, it depends. These are the factors that will determine your final super fund sum.
- The part of your payout that is still to be taxed, called the taxable component.
- The age you are when you receive the payout.
- The method of payment, whether it is as a lump sum or as a monthly pension.
Not surprisingly most of your super fund will be taxable. However if you worked for the public sector or you transferred another pension account to your super fund it is possible that some of your super fund component has already been taxed.
There are also contributions of your super fund that are exempt from tax and will be untaxed when you cash in your superannuation fund.
How old you are when you receive the super fund will also determine the rate of interest you pay. If you wait for retirement age you will pay less tax than if you cash in as soon as you reach release age or even worse if you do so earlier.
Working on the concept that a dollar today is worth more than a dollar tomorrow you will also pay more tax if you receive your whole super fund in one lump sum or you take it as a monthly pension.
Take into account these factors when planning your retirement and your super fund, a little forethought can save you hundreds if not thousands of dollars.
When can I access my Superannuation fund before retiring?
The quick answer policy planners would like to give you is never or when you are too ill to work or if you are dead. The whole Superannuation scheme is a set as a way to get citizens to save for their retirement. Retirement planning is one of the most important issues in many countries’ financial agenda due to the special circumstances surrounding pension funds. Why is that the case and how can you access your super fund before you retire will be the main issues this article will seek to answer.
As a general rule we don’t like to save. There are so many things to do and enjoy that saving money you could spend and enjoy now just seems a little dull and boring. Before, many of us could rely on government pension funds that all workers could expect to receive when they turned 60 or 65. With the drop in birth rate and an ever older population average we are struggling to pay for the current pension never mind future pensions. For these reasons it is increasingly important for us to take responsibility of our own pension funds to cover our retirement expenses.
It is therefore a great idea to avoid touching your super for as long as you can no matter how hard things are. With the power of compound interest a buck today can become dozens or even hundred by the time you reach 60 or 65. However there are times when you have little or no choice and need to access your pension fund savings. How do you go about this with funds that are designed to be iron clad until your fulfill the release requirements of your super fund? The answer is to have a good understanding of the terms and conditions of your super fund.
The first term you must understand is preservation age. This is the minimum age you can begin to access your super fund. This age does not necessarily coincide with your retirement age. For anybody born after 1960 the preservation age is 60. For anybody born before it varies from 55 to 60, check the Australian Taxation Office for more details.
The next question is what kind of benefits do you wish to release. There are three super benefit categories, preserved, restricted non-preserved and unrestricted non-preserved. Each category has different rules that regulate when and how they can be cashed in.
Preserved benefits, have a pretty fitting name, you cannot generally touch them until you have statisfied release conditions, more on them later.
Restricted non-preserved benefits can be paid to you as long as your employer has been making your superannuation contributions and that employment has been terminated.
Unrestricted non-preserved are benefits that your voluntarily kept in the super system once you had met a condition for release. You can access these benefits whenever you want.
Conditions of release.
So what are the conditions on which you can access your super fund benefits.
They are simple, you must be 65, or reach preservation age and stop working permanently. You can also die, but we don’t recommend that option. Becoming permanently incapacitated, not a great option either. In cases where the benefit is small, less than $200 you can receive the cash if your employment is terminated or you are a lost member that is found, a little super prodigal son.
You can also access your super fund in extreme cases like when you need the money to pay for medical expenses, have a terminal medical condition or on other compassionate grounds. If you are experiencing extreme financial hardship you may also qualify, really needing a new plasma will not qualify you I’m afraid.