Q: I have a friend with $1.1 million in an industry super fund that is all from concessional contributions except for $3000 in an after-tax account that was due to an excess contribution. He also has $800,000 in an SMSF that is all after-tax contributions invested in ASX-listed shares. He is planning to retire next year and would like to organise a pension using the $1.7 million limit.
The first thing to consider, says Philip La Greca, a technical and strategic services manager with SMSF service provider SuperConcepts, is the tax components of the different accounts. This can affect any tax payable where a retiree is under 60 as well as any potential tax on the member’s death where the benefit is paid to someone who is not a dependant of the member.
Someone who is not a dependant, like an adult child who is self-sufficient or the beneficiary of super through an estate, is entitled to inherit tax-free super with no tax, whereas a taxable super component is liable for 17 per cent tax. The reason for preferring to start a pension from an account with a higher tax-free proportion is twofold. When you start a pension, you lock in the tax-free proportion at the commencement date and this ratio applies to any payment out of that account balance in the future. This could be a lump sum or a death benefit.
Regarding your question on the minimum drawdown rates, these only apply to the pension accounts: the $800,000 in the SMSF and the $900,000 in the industry fund, says La Greca.
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