Expert SMSF insights
Accessing your super? Here’s what to consider
By Graeme Colley
All super benefits are the same, right? Not so fast. Super can be paid as lump sums or pensions for different reasons – and can be paid in cash or by transferring the fund’s investments to you. Before you start drawing your super there’re a few things to understand to avoid breaching the rules.
Make sure you’re legally entitled to it
To access your super you’ll need to meet a condition of release.
Generally, by meeting a condition of release you’re not required withdraw a benefit – it’s simply available if you so choose.
The most common way to access your money is by retiring
The most common conditions of release are activated once you ‘retire’ after reaching your preservation age (currently age 57) and once you are 65. For you to be considered retired, different rules apply depending on whether you are between your preservation age and age 60, and from 60 until you reach 65. Once you reach your preservation age you have retired if you have ceased employment and intend at that time not to return to work for more than 10 hours each week. Once you reach 60 you are retired if you have ceased any employment, but this does not prevent you from continuing other work or commencing a new job should you choose.
Taking your benefit as a lump sum
If you’re withdrawing your super as a lump sum, there are two ways in which it can happen. Your lump sum can be paid to you as cash or as a transfer of the fund’s investments equal to the value of your entitlement. Your benefit could also be paid as a combination of cash and investments.
Choosing an income stream
To access your money via an income stream there are two common options: an account-based pension or a transition-to-retirement income stream (TRIS), with both subject to a minimum amount.
A TRIS, which can commence from the time you meet preservation age, has a maximum amount that you can draw in addition to the minimum. The maximum applies until you have retired or reached 65, whichever occurs first.
All income stream payments must be paid in cash unless you elect to convert them in part or full to a lump sum. The value of the lump sum can be paid as cash or by transfer of the fund’s investments.
Other conditions of release
Other conditions of release can include a terminal medical condition, total and permanent incapacity or temporary incapacity. If you are experiencing temporary incapacity your benefit must be paid as an income stream and limited to the period of your incapacity which is like a salary continuance benefit from an insurance company. However, in the other two situations, your super can be paid to you as a lump sum or an income stream depending on what may provide the best result for you.
Superannuation can also be paid to you in financial hardship or if you satisfy the release on compassionate grounds. There are special conditions which you will need to meet for the payment to be made and there may be limits to the amount you can access.
There are also conditions of release allowing you to withdraw amounts corresponding to excess concessional and non-concessional contributions, excess amounts you have transferred to retirement phase, as well as any interest penalties relating to the excess. In these situations, the ATO will notify you of what needs to be done to facilitate the withdrawal.
Treatment of your super upon death
On your death your superannuation benefits can be paid to your dependants as a lump sum or pension. Where a death benefit is paid to an adult child, as a rule, it must be made as a lump sum, however, in very limited circumstances it can be paid to them as an income stream. And if your death benefit is to be paid to your estate, then it must be made as a lump sum and distributed by your executor as instructed in your last will and testament.
A word of caution
There are over 20 situations where you can access your superannuation legally. Make sure any drawdown is within the rules. If not, you may incur penalty taxes, personal fines or you can even be disqualified as trustee.
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