Contributions Splitting
Contribution Splitting is a little known yet powerful strategy in retirement planning. It can help couples manage their super, tax, pension and assist in working towards their shared financial goals, resulting in a more financially secure retirement.
Please Note: Any advice on this page is general in nature and does not take into account your objectives, financial situation or needs. Consider whether this is right for you. See full disclaimer.
What is Contribution Splitting?
Contributions splitting is a rule within Australia’s superannuation system that enables one partner to transfer a portion (up to 85%) of their concessional (before-tax) superannuation contributions to their spouse’s superannuation account.
Benefits of Contribution Splitting
Contribution splitting can help equalize superannuation balances between partners and plan for retirement together. In certain situations, there can be tax and Centrelink benefits.
Boost your Partners Balance
Contributions splitting can be particularly advantageous for couples with large gaps in incomes or superannuation balances. By transferring contributions from one partner to another, couples can work towards achieving more equitable retirement savings.
Boosting up smaller balances can also reduce the effect of fixed fees eating into investment returns by making them lower as a percentage of the balance.
Maximize Tax Benefits
Superannuation contributions are subject to concessional tax rates making them an attractive for boosting overall wealth. At the same time, if super balances reach certain thresholds some limitations are placed e.g. above $500,000 carry forward contributions can’t be used, above $1,700,000 and the transfer balance cap is applied and above $3,000,000 super earnings are taxed at a greater amount. By contribution splitting, couples to benefit from concessional contributions and manage their super exceeding these thresholds.
Aged Pension Benefits
The super balance of pre-retirement age individuals isn’t counted towards the pension asset test, whereas retirement age super balances are. So, if one member of a couple is approaching retirement age and they have a younger spouse it maybe advantageous to contribute their super into their younger spouse’s fund via contribution splitting.
Planning for Retirement Together
Contributions splitting encourages couples to take a collaborative approach to retirement planning. By actively managing their superannuation savings together, couples can make decisions that align with their shared financial goals for retirement.
Eligibility for Contribution Splitting
To be eligible for contributions splitting, couples must meet certain criteria:
-Both partners must be Australian residents.
-The recipient spouse must be under their preservation age or between their preservation age and 65 and not retired.
-The contributing spouse must be under 75 years old.
-Couples must be legally married or in a de facto relationship.
How to Split Contributions
To split contributions, follow these steps:
Review Eligibility: Ensure both partners meet the eligibility criteria outlined above.
Complete the Necessary Forms: Complete the Contributions Splitting Application Form provided by the Australian Taxation Office (ATO) or the individual’s superannuation fund.
Specify the Amount to be Transferred: The maximum amount that can be split is 85% of concessional contributions.
Submit the Form: Submit the completed form to the superannuation fund you are transferring funds from. Do this immediately after the financial year in which contributions were made.If you intend to withdraw your super or roll over your funds to another super fund before the end of the financial year, then submit the form before the end of the financial year.