Tax-effective measures can maximise your retirement savings.

Split savings for a good partnership

By John Cunniffe

Tax-effective measures can maximise your retirement savings.

Rules allowing super contributions to be made for a spouse provide a powerful financial planning tool in many situations.

Super contributions made on behalf of a spouse ensure flexibility and independence for each person, with savings accumulating tax effectively for their retirement.

Significant advantages can be made by splitting retirement savings.

For example, if both partners are older than 55 they are each eligible for the post June 30, 1983, tax-free threshold of $112,405 (2002-03), which enables $224,810 between them to be withdrawn tax-free as a lump sum.

In addition, each partner has separate Reasonable Benefits Limits, which increases the total amount overall that can be withdrawn from superannuation tax effectively.

All superannuation contributions are preserved. But if the receiving spouse is between the ages of 55 and 65, and is retired but has worked at some time in the past, they will satisfy a condition of release for super benefits.

Significant contributions can be made to their super fund, which can be accessed and rolled into a pension or annuity to provide a tax-effective income stream.

Retirees over 65 years who cannot contribute to super themselves can contribute to super on behalf of their spouse, provided their spouse is younger than 65 or is still working at least 10 hours a week.

If one partner has an adjusted taxable income above $85,242, contributing to super in their spouse’s name instead of salary sacrifice or deductible contributions in their own name can reduce the amount of contributions affected by the super surcharge.

Tax-effective death and total and permanent disablement insurance can also be obtained for a spouse who is a low-income earner.

The payment of premiums is considered to be a contribution to super. For a person who can claim the 18 per cent rebate on up to $3000 of spouse contributions, the premiums to insure the spouse through super may be tax effective.

As an example of using spouse contributions, Robert (50) and Cindy (45) plan to share Robert’s super when he retires. Robert is employed in full-time paid work and Cindy earns $10,000 a year working part-time. Robert currently contributes to his own super fund.

A strategy for maximising their retirement savings is as follows:

Robert contributes to super in Cindy’s name.

Robert is eligible to claim the 18 per cent rebate on $3000 of contributions (total rebate of $540).

When they retire, Robert and Cindy transfer their super into an allocated pension.

Based on the current tax rules, if they have no other income in retirement, they can receive up to $50,000 of combined taxable income from pension payments and pay no tax due to the operation of a 15 per cent rebate on allocated pension income. This is almost double the income that could be received tax-free if Robert had only a super account.

This amount could increase if their super balance includes undeducted contributions or spouse contributions.

• John Cunniffe is an authorised representative of RetireInvest Pty Limited.

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