How much tax you pay on retirement income depends on your age and the type of income stream.
For most people, an income stream from superannuation will be tax-free from age 60.
How super income streams are taxed
Types of super income streams
Income from super can be an:
account-based pension — a series of regular payments from your super money
annuity — a fixed income for the rest of your life or a set period of time
What is taxable and what is tax-free
Part of your super money is taxable, made up of:
salary sacrificed contributions
personal contributions claimed as tax deductions
Part is tax-free, made up of:
after tax contributions
If you’re age 60 or over
Your entire benefit from a taxed super fund (which most funds are) is tax-free.
If you’re age 55 to 59
Your income payment has two parts:
taxable — taxed at your marginal tax rate, less a 15% tax offset
tax-free — you don’t pay anything more
If you’re age 55 or younger
You can usually only access your super if you experience permanent incapacity. If this happens, you’ll be taxed the same as people aged 55 to 59.
If accessing super for a different reason, such as severe financial hardship, your income payment has two parts:
taxable — taxed at your marginal tax rate
tax-free — you don’t pay anything more
Work out your marginal tax rate.
Tax on other types of super funds
Defined benefit super fund
If you’re with a defined benefit super fund, you’ll get a statement from your fund before becoming eligible for your benefit (super money). This will tell you how much of your benefit is taxable and how much is tax-free.
Untaxed super fund
Some government super funds don’t pay regular tax on contributions. These are known as ‘untaxed funds’. If you’re a member of an untaxed fund, you pay tax when you access your money. Check with your fund to find out more.
Self-managed super fund (SMSF)
If you’re part of a self-managed super fund (SMSF), how you access your money depends on the ‘trust deed’ (rules).
Tax on transition to retirement income streams
With a transition to retirement (TTR) income stream, you can access your super while working. To get one of these pensions, you must have reached your preservation age (between 55 and 60).
Find out your preservation age.
You can take out up to 10% of the balance each financial year. You can’t withdraw it as a lump sum.
You pay the same amount of tax as on other super income streams, according to your age. Investment returns on TTR pensions are taxed at up to 15%, the same as a super accumulation fund
Tax on non-super income streams
With an annuity bought with money from outside super, you get a fixed income for a set period of time. This pension income, less a deductible amount, is taxed at your marginal tax rate
The deductible amount is the part of your original money (capital) coming back to you with each pension payment.
Get help if you need it
Find out more about withdrawing your super and paying tax on the Australian Taxation Office (ATO) website.
Services Australia’s Financial Information Service offers free seminars on topics such as retirement income and pension options.
For help with tax matters, see a tax professional or contact us on 0438 334 334.
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/retirement-income-and-tax
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