Superannuation refers to arrangements put in place to help employees accumulate sufficient funds for their retirement. In Australia, this arrangement is partly compulsory and the government has further thrown its weight behind it through tax benefits. There are minimum standards set by the government for employees and the authorities tasked with the management of these funds. Employers on the other hand have an obligation to make contributions to this fund on behalf of the employees over and above the wages and salaries they pay them.
When it comes to withdrawal of superannuation funds, access to the superannuation fund is granted only where the individual meets the conditions of release as stipulated in the Superannuation Industry Regulations 1994. The conditions of release are put in place to prevent premature access of the funds.
Depending on how you access your funds, there are tax implications you may face. It is therefore important to understand the options available and how suitable they are to you in preserving your retirement income through minimal taxes. There are two main superannuation withdrawal options: super lump sum and super income stream. That said, it is important to confirm with your fund because not all options are available in all the superannuation funds.
Super Income Stream
Under this option, you receive regular payments at least annually from your super fund. The payments are made over a definite period of time. The payment interval may differ as well as the amount paid. Once you start withdrawing from your super income stream, you cannot make additional contributions. If your contributions were non-concessional meaning after tax, then your withdrawal would be tax free. On the other and, if they were concessional meaning before tax, your withdrawals will be taxable. The amount of tax you pay on withdrawal will also depend on whether your superannuation fund already paid tax on it or not, and your age.
Super Lump Sum
This means you withdraw all your retirement savings in a single payment. You may also withdraw your super in lump sums as long as these lumpsums are not regular payments. If it becomes regular, then the withdrawal changes to income stream. When you choose these withdrawal option, your money will no longer be classified as super. This means any earnings derived from investments you make using this money will have to be declared as income in your tax return and will not qualify for taxation as super. It's therefore important to consider all the options you have and your plans for retirement before choosing either of the above.
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