Trustees and advisers of self managed superannuation funds (SMSFs) should ensure the have checked off five key factors to make certain their SMSF starts 2016 on the right track, says Andrew Yee, director of Wealth Management at HLB Mann Judd Sydney.
“There are some straightforward, but frequently overlooked, steps to take to ensure your SMSF is in good shape for the New Year,” Mr Yee says.
“First up, is to check that you are on track to maximise your contributions to the fund and to put in place measures to salary sacrifice up to the maximum limit, if you haven’t already done so.”
For those aged under 50 the maximum contributions limit is $30,000. For those aged over 50 it is $35,000.
“This is an important consideration for those who are turning 50 in this financial year,” Mr Yee says.
“As long as you turn 50 anytime during the financial year, you are eligible for the higher $35,000 cap. Many people do not realise this, and think the ability to make additional contributions only applies from their birthday.”
Making contributions or planning to make contributions is a task that is often left until the end of financial year approaches, yet it is one that should be reviewed and implemented during the year. Mr Yee urges SMSF trustees not to leave it until the last minute.
“Super contributions are only allocated in the year they are received by the fund. If you leave it too close to 30 June, you might miss the cut off if payments are late or if there are any issues with EFT or BPay or delays in processing cheques.”
Secondly, he says, if you are drawing a pension from your SMSF, you need to ensure you have drawn down the minimum required before June 30, otherwise you risk losing the tax exemptions on the SMSF’s earnings.
“It is an important consideration. Many people leave it up until June, and if it is not done in a timely fashion, or worse is overlooked, or you have underpaid the pension, it leaves the super fund open to an unexpected tax liability. It happens more often than you would think.”
The minimum amount that must be drawn as a pension depends on your age. For example, those aged between 55 and 64 years, it is 4 per cent of the account balance. If you are aged 65 to 74, it is 5 per cent and from 75 to 79, it 6 per cent.
“Again, if you have a birthday during the financial year, and are turning 55, 65 or 75, it is important not to be caught out, and to be across the minimum pension drawdowns that apply for your age,” Mr Yee says.
For those in the transition to retirement phase, it is important to ensure you are on track to keeping the maximum pension you draw to under 10 per cent of the account balance.
“If you go over this amount, your fund will lose the tax exemption on its earnings and the pension received by you will be taxed as normal income,” Mr Yee says.
A fourth key point for SMSF trustees to remember that the magic age to draw money from your super fund is 60.
“Age 60 is when pensions or lump sums taken from super are tax free in your hands. But age 60 does not mean you can now start drawing from your super as you still need to meet a condition of release, such as retirement in order to do so. Not everyone is aware of this and often confuse the two issues.”
Finally, he says, always ensure your planning is applicable for the rules and regulations that are in place now, and not act out of fear that the rules may change in the future.
“It is important that the actions you are taking are the appropriate ones for your financial situation. Making financial decisions in an effort to second guess government changes to the superannuation system should be avoided.
“That said, if you are eligible to take advantage of a current super concession such as a transition to retirement pension, and it makes financial sense to do so, why not start it now?” Mr Yee says.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Phone: 02 9020 4213