Early Access to Superannuation: What You Need to Know
Superannuation is designed to provide financial security in retirement. However, in specific circumstances such as permanent incapacity or terminal illness, you may be able to access your superannuation early. Understanding the eligibility requirements, payment options, and implications is crucial for making an informed decision.
Conditions for Early Access to Superannuation
Permanent Incapacity
Eligibility:
To access superannuation due to permanent incapacity, you must have a mental or physical condition that makes it unlikely you will ever work again in a job for which you are qualified by education, training, or experience. Evidence from two medical practitioners is required, including one specialist.
Payment Options:
Lump Sum Withdrawal: You can access the entire balance or multiple smaller amounts.
Commence a Pension: Receive regular, tax-effective income.
Retain in Accumulation: Withdraw ad hoc amounts later as needed.
Terminal Medical Condition
Eligibility:
You must provide certification from two registered medical practitioners, including a specialist, stating that your condition is likely to result in death within 24 months.
Payment Options:
Lump Sum Withdrawal: The entire balance can be accessed tax-free.
Commence a Pension: Possible in certain circumstances with appropriate advice.
Tax Implications of Early Access
Permanent Incapacity Tax applies to amounts withdrawn under the taxable component, and your super fund will withhold the required tax amount.
Terminal Illness Lump sums withdrawn are tax-free if made within the certification period. If any balance remains in the fund and is paid as a death benefit, tax may apply to non tax-dependent beneficiaries.
Factors to Consider Before Applying
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Impact on Retirement Savings:
Early withdrawals reduce your retirement balance and future earnings potential. -
Social Security Entitlements:
Withdrawals may impact your eligibility for Centrelink benefits. You must notify Centrelink within 14 days of changes to your financial circumstances. -
Insurance Policies:
Withdrawing funds could affect your ability to maintain insurance policies within your superannuation account. -
Tax Efficiency:
Consider tax-effective ways to structure withdrawals, such as combining lump sums and pensions.
Planning Payment Options
Lump Sum Withdrawals Benefits: Immediate access to funds for medical expenses, home modifications, or debt repayment. Considerations: Tax rates for those under 60 can be as high as 22%. Earnings on reinvested funds are taxed at personal marginal rates rather than concessional superannuation rates.
Commencing a Pension Benefits: Provides regular, tax-effective income. Earnings on the pension balance are tax-exempt. Considerations: Assess the impact on your insurance policies. Pensions are subject to the transfer balance cap.
Retaining in Accumulation Phase Benefits: Allows flexibility for future withdrawals or pensions. Provides tax-effective earnings up to 15%. Considerations: Tax applies to withdrawals for those under 60.
Next Steps
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Speak to Your Financial Adviser:
Understanding the long-term impact of early access is essential. Your adviser can help assess the most suitable options for your financial and personal situation. -
Liaise with Your Super Fund:
Each fund has specific application processes and forms. Ensure all required medical evidence and documentation are submitted.
Contact us today to explore your options and ensure your financial needs are met effectively while securing your future.
