I recently inherited money from my parents and have paid off our home and have $100,000 left over. My partner and I don't have much in the way of super (only $120,000). We are in our early 50s and anxious about what to do about this. Should we invest the money into super. Or put it into a deposit on an investment property or shares? What is the safest option to ensure we have funds for our old age? We earn about $150,000 a year together.
At your age placing the money into super is the best strategy because earnings within the fund are taxed at just 15 per cent, which would be well below your marginal rate. If you are both working you will not be able to claim a tax deduction for a concessional contribution but you could consider salary sacrificing a substantial amount and making up the shortfall in your pay packet by drawing on your savings. This would be an effective way of getting money into super as a tax deduction. Whether you invest in shares through your super fund, or borrow for an investment property in your own names, is something you will have to decide for yourself. Keep in mind the limits on contributions if you invest in super.
I'm turning 55 in a couple of months time and no longer working. I've built up $500,000 in my self-managed super fund. Most of my money is in the fund hence I have minimum taxable income. Should I convert my account into pension mode to save tax? If so, do I need to wait until the end of this financial year or as soon as I turn 55?
You cannot start your pension until you are 55 but bear in mind that the price of starting the pension is the requirement that you start to draw down from your fund. If you find that you have excess funds because of the minimum draw-down requirements, you could always re-contribute to a separate accumulation account. This will enable you to preserve your retirement savings for as long as possible.
I have $83,000 in super and have not taken any money out of super in 12 months, yet I have dropped $1000 in that time. Would I be better off putting my money in a term deposit at 6 per cent for five years? What would I have to pay in tax? I get $549 a fortnight pension.
Moving your money to cash will protect you against any more falls due to market movements but over time the value of the funds will be eroded by inflation. Your best strategy depends on what other assets you have. The main reason to hold money in super is to save tax, so a major factor will be the effect a withdrawal of your funds from super would have on your overall tax position.
I read your comments about paying $1000 a year into a fund for children from birth and the possible financial outcomes for when they reach 18. I've started a fortnightly payment of about $1000 a year. Our baby is due in December. I intend to keep this going for my child after birth. What should we invest in? I'm putting it into a savings account at present.
A savings account is fine while the capital is small but recent budget changes mean you will suffer a punitive tax on the interest once it exceeds $416 a year. This is why I prefer investment bonds, which are tax-paid investments, with the fund paying tax at 30 per cent a year on the holder's behalf. Because the earnings accrue in the form of bonuses, there is nothing to declare on anybody's tax return each year and they can be transferred to the child without capital-gains tax when appropriate in the future.
Noel Whittaker AM is a co-founder of Whittaker Macnaught. Advice is
general and readers should seek their own professional advice.Contact noel.whittaker@whittaker macnaught.com.au.
Questions to: Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.com.au/ask-an-expert.
Frequently Asked Questions about this Article…
I inherited $100,000 and am in my early 50s — should I put the money into super, buy an investment property, or invest in shares?
At your age, putting the money into super is often the best strategy because earnings inside a super fund are taxed at just 15%, which is typically well below your personal marginal rate. Whether you invest in shares inside super or borrow to buy an investment property in your own names is a personal decision, but remember there are limits on how much you can contribute to super.
Can my partner and I claim a tax deduction if we both add money to super, or should we use salary sacrifice?
If you are both working you generally won’t be able to claim a tax deduction for a concessional contribution. The article recommends considering salary sacrificing a substantial amount and topping up any shortfall from your savings — this is an effective way to get money into super with a tax advantage.
I’m turning 55 and have $500,000 in my SMSF — should I convert to pension mode to save tax?
You can’t start a pension until you are 55, but once you do the trade‑off is that you must begin drawing down from the fund (minimum draw‑down requirements apply). If starting a pension creates excess funds because of those draw‑down rules, you could re‑contribute to a separate accumulation account to preserve retirement savings.
My $83,000 super dropped $1,000 in a year — would a 5‑year term deposit at 6% be better than staying in super?
Moving to cash (a term deposit) will protect you from further market falls, but over time cash can be eroded by inflation. The best choice depends on your other assets and your overall tax position — one of the main reasons to hold money in super is to save tax, so consider how a withdrawal would affect your overall taxes before deciding.
How does tax work on earnings inside super and how does that affect investment choices?
Earnings within a super fund are taxed at 15%, which can make super attractive compared with holding investments in your own name where you pay your personal tax rate. That tax advantage is a major reason to hold money in super, but you must also factor in contribution limits and how withdrawals would change your tax position.
I’m saving about $1,000 a year for my baby — is a savings account or an investment bond a better option?
A savings account is fine while the capital is small, but recent budget changes mean you’ll face punitive tax on interest once it exceeds $416 a year. Investment bonds can be preferable: the fund pays tax at 30% and earnings accrue as bonuses so there’s nothing to declare each year, and they can be transferred to the child later without capital‑gains tax when appropriate.
What are investment bonds and why might they suit small regular savings for a child?
Investment bonds are tax‑paid investments where the fund pays tax at 30% on earnings and those earnings build up as bonuses. Because the bond’s earnings aren’t declared on the holder’s tax return each year, they can be tax‑efficient for modest, ongoing savings and can be transferred to a child without capital‑gains tax when the time is right.
Who provided this advice and should I get tailored financial advice?
The answers come from Noel Whittaker AM, co‑founder of Whittaker Macnaught, and are given as general guidance. The article recommends readers seek their own professional advice for personal situations.
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