Newsletter No. 9, September 2014

Milestone Ages in Superannuation

I, like most people, did not take an interest in superannuation until I was in my mid-thirties. It was only because the position I was occupying in the Tax Office at the time was made redundant.  The Superannuation area of the ATO created four new positions and I was one of the four people who applied for the positions.  So I guess superannuation wasn’t really that popular with anyone at the time.

In my first three months, I found superannuation law too confusing and I started planning ways to move out of the area. But being a person who always wants to do a good job at anything they do, I decided to take up studies on superannuation.  It was these studies that ignited my passion for superannuation.

Because of compulsory superannuation – the Superannuation Guarantee commenced in 1992 – your superannuation savings is normally your second largest asset after your residential home.  If you make yourself aware of the crucial “milestone” ages in superannuation, you can make superannuation work for you.

Here are some of those crucial superannuation milestone ages:

18:  This is when you can become a trustee of a self managed superannuation fund (SMSF).  It doesn’t mean that you cannot join one while you are under 18, you can – but you would have to appoint a legal personal representative, a guardian or your parent to act as a trustee on your behalf.

18 to 55:  Most of us during the age of 18 to 55 would be holding a job of some sort or even be self-employed. My friend Noel Whittaker will tell you that it is better to start superannuation at a younger age so that you can take advantage of compound savings.  The sooner you save for your retirement, the longer you will have to accumulate wealth in your SMSF.  Some low income earners may be able to take advantage of the Government’s low income superannuation contribution tax offset of $500 and the superannuation co-contribution of $500 that is available to them just by making concessional and non-concessional contributions into their SMSF.

55:  Once you reach your preservation age, which is normally age 55 for anyone born before 1 July 1960, you can start a transition to retirement pension from your SMSF.  This gives your SMSF a tax exemption from any earnings generated from investments that are supporting your pension.  Where else can you get a 100% tax exemption from investment earnings?

65:  Once you are over the age of 65, you will need to be working at least 40 hours in a period of not more than 30 consecutive days to make contributions into an SMSF. So make sure you accumulate your wealth before this date, especially if you are intending not to work beyond 65. You can also no longer take advantage of the two year bring forward rule for non-concessional contributions.

70:  You can no longer make contributions for your spouse, once your spouse is aged 70 or over.

75:  Once you are aged 75 or over, you can no longer make personal contributions into your SMSF. You can also no longer take advantage of a re-contributions strategy to leave more tax-free money to your children.

It pays to have some awareness of these superannuation milestones. Time flies and our birthdays are upon us before we know it. Don’t miss out on opportunities to save for your retirement just because you haven’t paid attention to your crucial milestone ages.

Disclaimer

Monica Rule worked for the ATO for 28 years and is a Self-Managed Superannuation Specialist Advisor. Monica is the author of “The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Funds in plain English” www.monicarule.com.au. Her advice is general in nature and you should seek advice that relates to your specific circumstances before making any decisions.