Superannuation Discussion + market volatility

[Pushka]

That said
A mindset of spend and gift means running the capital down at a rate that meets your lifestyle and inheritance goals

And if you have the answer to that one then you won't need to worry about having enough money to retire on. This is of course is the Holy Grail.

 

[serfty]

And if you have the answer to that one then you won't need to worry about having enough money to retire on. This is of course is the Holy Grail.

Of Course ...

Post in thread 'The totally off-topic thread'

Sep 5, 2016

When I die ...

I am planning on living forever ...

... so far, so good.

• NM

• 

 

[serfty]

OK, trying to get some clarity in all this. So I have devised an example. I'm keeping the amounts small to avoid complications with any non-concessional contributions cap.

Mr Retired is 69 years of age and has a superannuation account balance of $300K. They have never made any after tax contribution (neither concessional nor non concessional).

Of that $300K, $10K is listed on their benefit statement as "Tax Free" and $290K as "Taxed".

The entire $300K is withdrawn and deposited into a superannuation account as a "personal after-tax contribution".

So, now then listed on the benefit statement there $300K as Tax Free and $0 as Taxed.

This is converted into a superannuation pension with 6% withdrawal.

In the first year the pension fund earns 10%, and now has a rough balance of $312K ($300K + $30K - $18K).

Does this result in a situation where there is $282K listed as Tax Free and $30K as Taxed? [EDIT]NO! - See below[/EDIT]

Of course, this is simplistic ....

 

[andye]

My understanding (and I could be wrong as I'm applying logic rather than a clear source) is that the taxed component would be $300k and the untaxed $12k.

If the fund grew by the same amount the following year with same withdrawal the untaxed component would become $12k (from last year) + $12k + (12/312 x $18k), taxed would remain $300k.

Ignore above and posts #3295 & # 3299. I'm wrong. See post #3307

 

[serfty]

OK, trying to get some clarity in all this. So I have devised an example. I'm keeping the amounts small to avoid complications with any non-concessional contributions cap.

Mr Retired is 69 years of age and has a superannuation account balance of $300K. They have never made any after tax contribution (neither concessional nor non concessional).

Of that $300K, $10K is listed on their benefit statement as "Tax Free" and $290K as "Taxed".

The entire $300K is withdrawn and deposited into a superannuation account as a "personal after-tax contribution".

So, now then listed on the benefit statement there $300K as Tax Free and $0 as Taxed.

This is converted into a superannuation pension with 6% withdrawal.

In the first year the pension fund earns 10%, and now has a rough balance of $312K ($300K + $30K - $18K).

Does this result in a situation where there is roughly $282K listed as Tax Free and $30K as Taxed?

Of course, this is simplistic ....

If this is correct, I am guessing that for the second year, this would not be so strait forward as we would have a ratio of 282/312 Tax free and 30/312 Taxed. The 6% for the second year would be $18.72K. Since the pension is drawn pro rata $16.92K would come from Tax free and $1.8K from Taxed.

If the 10% return was repeated for this second year it would result in a balance of $324.48K [$343.2 - $18.72K] with $265.08K Tax Free and $59.4K Taxed.
See below:

Post in thread 'Superannuation Discussion + market volatility'

Yesterday at 4:29 PM

Have been hunting around and looks like I'm probably wrong.
Superannuation Tax Free Component | Super Guy suggests that once income stream started ratio is locked in. Sorry if I've caused alarm....... (and hoping I don't cop as much flak as Campese is after getting the Wallabies wrong)

Thanks - based on that information, it means my recent posts are also wrong.

...
However, once an income stream commences, the proportions ... are locked in.

All earnings within the account (positive and negative) are allocated proportionately to each component.

Also, all withdrawals...

• serfty

• 
• 

 

[serfty]

My understanding (and I could be wrong as Im applying logic rather than a cleae source) is that the taxed component would be $300k and the untaxed $12k.

If the fund grew by the same amount the following year with same withdrawal the untaxed component would become $12k (from last year) + $12k + (12/312 x $18k), taxed would remain $300k.

When you indicate "Taxed Component" do you mean "[Already] Taxed Component" and is now deemed Tax free (no further tax payable) if part of an estate?

The other part of this is that you indicate the Pension payments come from earnings first. There is no pro-rata allocation?

 

[andye]

Have been hunting around and looks like I'm probably wrong.
Superannuation Tax Free Component | Super Guy suggests that once income stream started ratio is locked in. Sorry if I've caused alarm....... (and hoping I don't cop as much flak as Campese is after getting the Wallabies wrong)

 

[serfty]

Have been hunting around and looks like I'm probably wrong.
Superannuation Tax Free Component | Super Guy suggests that once income stream started ratio is locked in. Sorry if I've caused alarm....... (and hoping I don't cop as much flak as Campese is after getting the Wallabies wrong)

Thanks - based on that information, it means my recent posts are also wrong.

...
However, once an income stream commences, the proportions ... are locked in.

All earnings within the account (positive and negative) are allocated proportionately to each component.

Also, all withdrawals, just like in accumulation phase, need to be made proportionately from each component.
...

With my example of the superannuation pension commencing with a 100% Tax Free to 0% Taxable ratio, after 1 year the balance would be $312K with $312K Tax Free and $0 taxable.

After 2 years the balance would be $324.48K classified as Tax Free ($0 taxable).

Hence, the significant benefits of the recontribution strategy being discussed recently, especially for any Heirs ...

 

[Pushka]

Have been hunting around and looks like I'm probably wrong.
Superannuation Tax Free Component | Super Guy suggests that once income stream started ratio is locked in. Sorry if I've caused alarm....... (and hoping I don't cop as much flak as Campese is after getting the Wallabies wrong)

Thanks. I couldn't even fathom how the tax status could change. So. Back to this strategy then.

 

[serfty]

Yes they open a new separate fund, to recontribute to.

Does this have to be the case? While if you'd pull funds out of an account, what's to stop you recontributing back to it?

 

[OATEK]

Does this have to be the case? While if you'd pull funds out of an account, what's to stop you recontributing back to it?

The income stream rules are something I have never understood. It seems the fund holds the "new" (recontribution) in a temporary holding account (all cash I think) and then rolls the existing fully taxed with the new fully taxed, and starts a completely new income stream. I am on about my eighth IS.

 

[Pushka]

Does this have to be the case? While if you'd pull funds out of an account, what's to stop you recontributing back to it?

Can't make contributions to an existing pension fund. Only to an accumulation account. To recontribute funds you have to create a new pension fund. If you've no money left in the pension fund then a single new one is created. If you've funds still in pension you can keep that fund going but you have to create another one to have a pension from the newly withdrawn and recontributed pool. So have two pension funds going at once.

 

[serfty]

Can't make contributions to an existing pension fund. Only to an accumulation account.

Yeah, I realised I should have been specific in regard to all recontributions being complete.

 

[serfty]

The income stream rules are something I have never understood. It seems the fund holds the "new" (recontribution) in a temporary holding account (all cash I think) and then rolls the existing fully taxed with the new fully taxed, and starts a completely new income stream. I am on about my eighth IS.

So yes, if your fund is happy to work with you over time.

 

[serfty]

Terminology is Interesting here. It seems:

Non Concessional = Fully taxed = Tax free
Concessional = Taxed but deduction claimed = Taxable

 

[stm1sydney]

Can't make contributions to an existing pension fund. Only to an accumulation account. To recontribute funds you have to create a new pension fund. If you've no money left in the pension fund then a single new one is created. If you've funds still in pension you can keep that fund going but you have to create another one to have a pension from the newly withdrawn and recontributed pool. So have two pension funds going at once.

I think a common strategy where you have an existing pension a/c is: (1) keep open a small amount in your accum a/c, (2) contribute funds to that accum a/c, (3) rollover the pension a/c balance into the accum a/c and close the pension a/c, (4) open a new pension a/c (with the entire balance if no further plans for further contributions, otherwise leave a small amt in the accum a/c and rinse/repeat). This way you avoid running two pension a/cs and associated fees.

 

[Pushka]

I think a common strategy where you have an existing pension a/c is: (1) keep open a small amount in your accum a/c, (2) contribute funds to that accum a/c, (3) rollover the pension a/c balance into the accum a/c and close the pension a/c, (4) open a new pension a/c (with the entire balance if no further plans for further contributions, otherwise leave a small amt in the accum a/c and rinse/repeat). This way you avoid running two pension a/cs and associated fees.

Yes. We currently have both as we draw down a pension and also still working part time so salary sacrifice and SG into the accumulation. When we are done with accumulation then we will close and create a new pension account. But in the meantime ponder over the reduction of tax to non dependents strategy. Not sure I'm up for it tbh.

 

[Brissy1]

Terminology is Interesting here. It seems:

Non Concessional = Fully taxed = Tax free
Concessional = Taxed but deduction claimed = Taxable

Thanks.
A most difficult thing in reading ATO info (not just super) is their use of non self-explanatory jargon. It would be very helpful if they (or someone else) provided a glossary of their neologisms.

 

[Jacques Vert]

Does this have to be the case? While if you'd pull funds out of an account, what's to stop you recontributing back to it?

I done the withdrawal and re-contribution a couple of times in my self-managed super fund. Assuming you are over 60 (tax-free withdrawals), past your preservation age and stick within the contribution caps, etc...

• the contribution will go into your accumulation account (best if the balance is close to zero);
• you then start another income stream using the full balance of the accumulation account (if you leave the funds in the accumulation account then the earnings/increase in value will be taxable and the proportion of taxable to non-taxable will increase and you'll end up back where you were, or worse).

I think a common strategy where you have an existing pension a/c is: (1) keep open a small amount in your accum a/c, (2) contribute funds to that accum a/c, (3) rollover the pension a/c balance into the accum a/c and close the pension a/c, (4) open a new pension a/c (with the entire balance if no further plans for further contributions, otherwise leave a small amt in the accum a/c and rinse/repeat). This way you avoid running two pension a/cs and associated fees.

The problem with this is that you contaminate the new tax-free money with the taxable component of the existing pension account.

A better strategy IMHO is to minimize the quantum of the pension from the new pension account and take the majority of your income needs from the original pension account. Rinse and repeat until the full value of the original account has been withdrawn thereby eliminating (or nearly eliminating) the fund's tax liability. (Yes, you will have additional fees while you have more than one pension income stream but this is a small price to pay IMHO.)

 

[andye]

I done the withdrawal and re-contribution a couple of times in my self-managed super fund. Assuming you are over 60 (tax-free withdrawals), past your preservation age and stick within the contribution caps, etc...

• the contribution will go into your accumulation account (best if the balance is close to zero);
• you then start another income stream using the full balance of the accumulation account (if you leave the funds in the accumulation account then the earnings/increase in value will be taxable and the proportion of taxable to non-taxable will increase and you'll end up back where you were, or worse).

The problem with this is that you contaminate the new tax-free money with the taxable component of the existing pension account.

A better strategy IMHO is to minimize the quantum of the pension from the new pension account and take the majority of your income needs from the original pension account. Rinse and repeat until the full value of the original account has been withdrawn thereby eliminating (or nearly eliminating) the fund's tax liability. (Yes, you will have additional fees while you have more than one pension income stream but this is a small price to pay IMHO.)

This strategy doesn't work so well outside of an smsf as you have to pay 15% CGT on gains in the accumulation account