A re-contribution strategy involves withdrawing your superannuation and re-contributing it back into the fund as a non-concessional (after-tax) contribution.
It is an easy strategy to implement and can provide significant tax savings for a trustee and their family in the future. This is because the strategy converts the taxable portion of the withdrawn super amount into tax-free components, therefore reducing the amount of tax payable when the person’s superannuation is passed onto their beneficiaries when they pass away.
However, this strategy is only available to those who have met a condition of release to access their superannuation and are eligible to make a contribution back into their superannuation.
The strategy is most beneficial for those who are 60 years of age. This is because the strategy involves withdrawing a lump sum and paying any necessary tax on the withdrawal, and those who are aged 60 years or over generally do not have to pay tax on lump sum withdrawals they make from super.
Before implementing the re-contribution strategy, individuals should consider whether the strategy will be worthwhile in the long run. Those who are under the age of 60 wanting to use the strategy will not be able to withdraw their total superannuation balance tax-free. Those who have also triggered the bring-forward rule in the financial year they wish to use the strategy may also be at risk of paying more ‘excess contributions tax’.
As with most superannuation strategies, seeking professional financial advice may be best before implementing the re-contribution strategy.