How do you improve tax efficiency and strengthen estate planning

Here you will see how an Account-Based Pension and super recontribution strategy helped an FMG client reduce their home loan, improve tax efficiency and strengthen their estate planning.

Turning 65 can open the door to some valuable retirement-planning opportunities—even if you are still working.

A recent FMG case involved an existing client who had recently turned 65, was still earning a strong income and had an outstanding home loan.

The client wanted to begin accessing some of their superannuation to accelerate their mortgage repayments while continuing to build their retirement savings.

After reviewing their circumstances, we recommended transferring the majority of their superannuation into an Account-Based Pension.

What made this strategy particularly valuable was that it created four interconnected benefits.

1. Tax-free income to help reduce the mortgage

As the client was over age 60 and met the relevant superannuation conditions, pension payments from their Account-Based Pension were generally tax-free personally.

This created an additional source of cash flow that could be directed towards their non-deductible home loan without increasing their taxable income.

Rather than simply viewing super as money for after retirement, it became part of a broader strategy to enter retirement with less personal debt.

2. A more tax-effective environment for retirement savings

Moving the majority of the client’s super into retirement phase also meant that investment earnings on assets supporting the pension could generally be earned tax-free, subject to the applicable rules and limits.

This allowed more of their retirement savings to continue working for them in a tax-effective environment.

 3. Continuing to build super while working

Importantly, starting an Account-Based Pension did not mean the client had to stop contributing to super.

Because they were still working, they could continue receiving employer super contributions and consider additional concessional contributions, including salary sacrifice and personal deductible contributions where appropriate.

This allowed the client to continue building retirement savings tax-effectively while using pension income to help reduce their mortgage.

 4. Improving the potential inheritance outcome for their children

We also identified that a significant portion of the client’s superannuation consisted of a taxable component.

While this may not create a personal tax issue for the client, it can potentially result in tax when superannuation death benefits are eventually paid to financially independent adult children.

As part of the advice, we implemented a withdrawal and recontribution strategy, with the client withdrawing and recontributing $390,000 as a non-concessional contribution under the rules applying at the time.

This increased the tax-free component of their super and reduced the taxable component potentially exposed to future death-benefit tax.

One Strategy – Four Valuable Benefits

For this client, turning 65 provided an opportunity to bring several areas of their financial planning together.

The strategy helped them:

• accelerate repayment of their home loan using tax-free pension income;
• move more of their retirement savings into a tax-effective pension environment;
• continue building super through concessional contributions; and
• potentially reduce future tax for their adult children.

It demonstrates why retirement planning isn’t simply about how much super you have accumulated.

How your super is structured, how it interacts with your personal debt and how it may eventually pass to the next generation can be just as important.

 

Could This Strategy Apply to You?

If you are approaching or have recently turned 65, are still working, have personal debt or haven’t reviewed how your superannuation is structured for retirement and estate planning, it may be worth having a conversation.

Contact FMG Wealth Strategists on 7111 0022 or email info@fmgws.com.au to arrange a discussion.

 

⚠️ Another important conversation is transferring wealth and despite the ever advancing information found online, there are 5 Key Life Stages To Use a Financial Planner and this is two of them.

As a result, it always pays to ensure you are getting the right advice.

Put simply, our professional role is to simplify anything complex and deliver certainty in your financial life so you can achieve that which is most important to you and your family.

 

If you’d like to discuss your situation, we’re here to help.→ Book a Call here

Arthur Panagis
Author, Founder, Wealth Coach and Financial Strategist
Call us on 08 7111 0022    Book a chat with us today.

 

   

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REMEMBER, action is power! We want to make the rest of your life the best of your life because your wealth and longevity go hand in hand – Living longer is fast becoming a fact of life and making the best financial decisions now is the key.

 

Disclaimer

This content is general in nature and does not consider your personal objectives, financial situation or needs. It is not financial or tax advice. Before acting, seek professional advice.