Superannuation is a long-term game. You’re investing to fund your retirement, so depending on how far away you are from retirement, your investment horizon is likely going to be quite broad. When actively investing in an SMSF — whether in an NDIS property investment, art, stocks or commercial property — it’s only natural to wonder, when can I access my super? Well, the answer is, there are a few different circumstances where you can access your super and a couple of options for how the money is paid out.
SMSF Conditions of Release
To be eligible to withdraw your super, you must first meet a condition of release. Before releasing any funds from the SMSF, you must ensure that it is allowed under your funds governing rules. Benefits are paid upon the following conditions being met:
- Reaching preservation age plus retiring.
- Reaching preservation age and commencing a transition-to-retirement income stream (TRIS) — without retiring.
- Ceasing an employment arrangement on or after age 60 — this is when the member ends one employment arrangement but continues with another.
- Reaching age 65 — ending employment is not necessary.
Accessing Super Early
Under some circumstances, you can access your super early. The following conditions of release allow you to access at least part of your superannuation:
- Diagnosis of a terminal illness. Two medical professionals must certify that death is the expected outcome within the next two years.
- Death. Your SMSF benefits will be paid to your beneficiaries.
- Suffering severe financial hardship. If you cannot pay an expense, a lump sum payment for a reasonable amount can be withdrawn if your fund’s governing rules allow it.
- Compassionate grounds. You can apply for funds of up to $10,000 if you have been receiving a Government benefit for a specified period of time and are struggling to meet your immediate living costs.
- Cease gainful employment. If your employment is terminated, it is possible to have all preserved benefits paid out, but it must be taken as a lifetime pension or annuity unless the amount is less than $200.
- Temporary incapacitation. You may be eligible to receive an income stream from your SMSF if you need to take time off work due to being temporarily incapacitated.
- Permanent incapacitation. If you are incapacitated and unable to return to your line of work, you will be able to withdraw your funds.
- First Home Super Saver Scheme (FHSS). If you have made voluntary concessional or non-concessional contributions to your SMSF, you can withdraw the funds and their earnings under the FHSS for the purchase of your first home.
SMSF Withdrawal Options
Upon meeting a condition of release based on age or employment, there are two ways of withdrawing money from super; drawing a lump sum or commencing a pension.
With an account-based pension, you choose how much money you’d like to transfer from super into the pension phase. This amount remains invested as per the asset allocation of the SMSF and provides a regular income stream. An account-based pension can be commenced upon meeting the above conditions of release. The income stream is subject to rules that state the minimum and maximum amount you can take each year. You decide how much you’d like to take within this range and choose when you receive the payments. When you reach age 60, the pension amount is completely tax-free. Personal tax rates apply before age 60, but a 15% tax offset is available, reducing individual tax liability.
Transition to Retirement Income Stream (TRIS)
If you are employed but would like an extra income stream, you may commence a TRIS when you reach your preservation age. If you are making personal super contributions from your after-tax income, it’s possible to claim a tax deduction of up to 45% — depending on your marginal tax rate. The taxed portion of the TRIS comes with a 15% tax offset. Depending on your marginal tax rate, employment income and TRIS amount, this could be a great strategy to minimise your tax. The yearly minimum amount that must be taken is 4% of the account balance, with the maximum being 10% of the balance.
Draw a Lump Sum
To draw a lump sum, you must have reached your preservation age and retired or reached age 65 (without having to retire). Your balance in the SMSF determines the lump sum limit. This means that the SMSF’s investments must be valued accurately before releasing the payment. This can sometimes be difficult considering the wide variety of investment options available to SMSFs.
If you are under 60 years of age, the lump sum will be taxed depending on a few different factors such as:
- If the payment is due to death, disability or retirement.
- Who is receiving the money, for example, in the case the recipient is a dependent of the member.
- Whether the lump sum was taken from a tax-free or taxable portion of the fund.
If you are thinking about withdrawing from your super, whatever your circumstances, it is a good idea to get advice to help you decide what withdrawal method is best for you when accessing your SMSF.