Super Balances

Recently a reader emailed me as follows “My super balance Is $260,000 and my wife’s balance is $80,000. When I input our numbers into your Super Contributions Indexed calculator, (7% return, 2% salary increase) my potential balance is $2.7M and hers is $1.4M by the time we reach 65. Given that my balance should well exceed the $1.6M balance transfer cap – should I start contribution splitting to my wife’s account to ensure that we maximise our tax-free earning once converted to a retirement income stream?”

I think that email is a reminder to all of us of the importance of reviewing our finances regularly and adjusting courses necessary. The strategy he proposes is simple, legal, and highly effective -splitting your superannuation with your spouse. To be eligible, the receiving spouse must be under age 65 and, if over preservation age, not retired. Where the receiving spouse turns 65 during the year of the split, action will need to take place before their birthday.

The transfer MUST be completed by 30 June.

Provided that the contributing member has a sufficient account balance, the amount that can be split is the lesser of 85% of the concessional contribution or $25,000. This means that, where the contributing spouse has made a $25,000 contribution, the maximum split would be 85% or $21,250.

Think about Mike, aged 56. He earns $145,000 a year and is contributing $25,000 a year to superannuation.

He already has over $700,000 in superannuation but his wife Helen, who has a casual job, has very little. His deductible contribution of $25,000 will still be liable for the 15 per cent contributions tax, but he can ask his fund to put $21,250 of it into her superannuation account.

The strategy can be especially useful if there is a significant age difference. If Helen was older than Mike she would reach her preservation age before him and so be able to enjoy the tax and access benefits that come at that age. If she was younger than him, their Centrelink benefits could be maximised, as money in superannuation is not counted until the owner reaches pensionable age.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance.