Ask Noel

Each week, financial adviser and international best-selling author Noel Whittaker answers your questions.

Each week, financial adviser and international best-selling author Noel Whittaker answers your questions.

I gather there is no maximum that must be withdrawn when a person aged 66 is in the pension phase. Does this mean they can make a lump-sum withdrawal from their fund for any amount they wish?

As long as their trust deed allows for

lump-sum withdrawals. Withdrawals can come out of the pension phase as a commutation of the income stream or an additional pension payment. Each type of withdrawal has a different outcome for the Centrelink incomes test, so take advice before withdrawing.

I recently read an article that suggested putting excess savings into super to save tax as the tax is only 15 per cent. However, savings come from taxed monies in the first place and are guaranteed by the government, as opposed to shares.

Keep in mind that superannuation is not an asset class like property or shares but merely a structure that lets you hold assets in an environment where income tax is 15 per cent per annum. A person aged 60 or over can make total pre-tax contributions of $35,000 a year into super, and the entry tax on these contributions is just 15 per cent. If they had a full-time job, this would certainly be less than their marginal rate. I agree that returns from shares are not guaranteed, but shares have the potential to produce much greater returns than cash. In any event, you could hold your super in cash if you wished.

In a recent article titled "Beware pitfalls of investing for a newborn", you wrote that someone holding an investment as a trustee would be taxed at the same rate as people under 18; that is, once income exceeds $416 a year, the tax will be at the highest marginal rate. Does this apply when the money is held in a separate trust and there is a trustee, or when someone just holds an investment in both names, such as Daisy (grandmother) as trustee for Donald (grandson)?

The punitive tax will apply irrespective of whether the asset is held in the name of the child or another person as trustee for the child. If the money is held by the adult in their own name, it will be taxed at the adult's marginal rate, but the income has the potential to affect their family tax payments or Centrelink benefits. It's really a matter of having your accountant do the sums.

We were anticipating a downturn in the property market so my wife and I sold our home in July last year. We are now renting with the intention of buying another house in two or three years. The sale proceeds of $700,000 are in two high-interest savings accounts at 5 per cent, so we will owe tax on the interest accrued. Is there a more profitable, low-risk option to store our cash for the next couple of years?

Leaving it in the bank is the only practical option because using it to invest in shares will expose you to a capital loss if the market falls, and capital gains tax if it rises. In any event, if the intention is to use the money to buy another property, you need to be liquid in case a bargain comes along at short notice.

I want to move some money from a term deposit into shares. Would I earn more interest buying Telstra or Commonwealth Bank shares?

It will depend on the market price of the shares on the day and the rate of dividend being paid by the asset you buy. Take some advice because you're better off investing in a diversified portfolio, and sometimes shares with a high yield don't have the growth prospects of those with a lower yield.

I am on an age pension of $600 a fortnight and my wife is on partner allowance of $430 a fortnight. How much can I earn annually to avoid paying tax?

A couple who are eligible for the Senior Australians and Pensioner Tax Offset can earn up to $28,974 each year before any tax is payable. This includes the Centrelink benefits you are receiving now.

Stretch yourself a little to maximise assets

The explainer

I am 48, single, earning $106,000. I have rental property in Melbourne with $200,000 equity in a great location that is positively geared, $60,000 in shares, $250,000 in super and $550,000 in cash. I rent in Sydney, and recently bought an off-the-plan property in Sydney for $800,000 that is due for completion late next year. Should I sell my shares and Melbourne property to pay off the remaining Sydney mortgage at settlement next year, which will leave me almost debt-free with time to build my super, even though this will mean all my eggs in one basket with no other assets and subsequent growth potential?

Investing is a bit like a game of Monopoly - the aim is to control as many assets as possible. Therefore, I see no reason to sell the Melbourne property if you think it has good potential. If the shares do not carry a large unrealised capital gain, it may be a good strategy to sell them and use the proceeds to reduce the mortgage on the property you are going to buy. You could then borrow back to replace the shares, and the interest on this new loan would be fully tax-deductible.

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