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When it comes to super, reaching age 60 triggers an important change. It means you can withdraw your super benefits more easily and, for most people, they are tax free.
This represents a big change from your tax position if you withdraw your benefits before age 60, when some tax is usually payable on part of your super benefit.
To help you understand a complex and confusing area of super, SuperGuide has put together an overview of the rules for withdrawing your benefits on or after your 60th birthday.
Getting your super benefit: Meet a condition of release
There are strict rules governing your ability to access your super savings, as the super system is designed to provide you with income in your retirement.
Once you reach age 60 it’s more straightforward, but you still need to meet a condition of release. At this age, common conditions of release include retiring from the workforce or starting a transition-to-retirement pension.
When you meet a condition of release and apply to access your super, you can usually choose to withdraw a lump sum, an income stream or a combination of both. If you’re using the transition-to-retirement condition of release, the only option is an income stream. You may also leave money in your original super account after retirement if you wish.
1. Withdrawing a lump sum
This is a single payment that withdraws some or all of your super. Taking a lump sum means the money is no longer within the super system so, if you invest it, any return on your investment will not be taxed as super savings.
This means the concessional tax rate of 15% on your investment earnings will no longer apply. Instead, your investment earnings outside super are taxed at your marginal tax rate, which can be as high as 45% (plus the Medicare levy).
2. Starting an income stream (super pension or annuity)
If you decide to take an income stream, you receive a series of regular payments from your super fund. These must be paid at least annually and must meet minimum annual payment rules. Investment earnings in super income streams are tax free, except in a transition-to-retirement pension where earnings are taxed at 15% until you retire or reach age 65.
Payments from taxed funds
Most people are members of taxed super funds. These funds pay tax on contributions and investment earnings. You don’t pay tax on withdrawals from these funds after you turn 60, except in the situations explained below:
1. Income from a capped defined benefit income stream
If you receive income from capped defined benefit income streams above the defined benefit income cap ($118,750 in 2023–24) you will need to declare some income on your tax return. The amount to declare is 50% of the portion of your annual payment that is above the cap. This amount will be taxed at your marginal tax rate.
A capped defined benefit income stream is:
- Any lifetime superannuation pension
- A lifetime annuity that existed prior to 1 July 2017
- A life expectancy pension or annuity that commenced prior to 1 July 2017
- A market-linked pension or annuity that existed prior to 1 July 2017
You may be the original recipient of the income stream, or you may be receiving it after the death of the original owner. Despite the name, many of these income streams are not defined benefits.
2. Lump sum death benefits paid to you when you were not a tax dependant of the deceased person
Tax dependants are:
- A spouse or former spouse (married or de-facto)
- A child under 18
- A person in an interdependency relationship with the deceased
- Any other person financially dependent on the deceased.
If a person close to you has died and left you their superannuation from a taxed fund, you will pay a maximum rate of 15% tax plus Medicare levy on the amount if you do not fall into one of the dependant categories.
Payments from untaxed funds
A small number of public sector funds (funds for government employees) are untaxed, meaning they don’t pay tax on contributions or investment earnings. Examples include Triple S in South Australia and West State Super in WA. Payments from these funds have an untaxed element that is taxed at higher rates to compensate for the fact no tax was deducted when the money was accumulating.
Any after-tax contributions you have made to one of these funds forms a tax-free element that is returned to you without tax. You may also have a taxed portion if you have rolled money over from a taxed fund and this is also returned to you tax free after age 60.
The table below shows tax on the untaxed element for different types of payments after the age of 60. Note that the Medicare levy applies in addition to these amounts, and these are the maximum rates of tax. If your marginal rate is lower, the ATO will adjust tax down to your marginal rate.
|Type of benefit
|Maximum rate of tax
|15% up to untaxed plan cap
45% above the untaxed plan cap
|Terminal illness lump sum
|Marginal rate with 10% offset*
|Death benefit lump sum when you are a tax dependant
|Death benefit lump sum when you are not a tax dependant
|Death benefit income stream
|Marginal rates less 10% offset*
The untaxed plan cap is $1.705 million in 2023–24
*Maximum tax offset is $11,875 for the 2023–24 income year. This has the effect that income from untaxed elements above the defined benefit income cap of $118,750 does not attract the offset
Tax time: Here’s what you need to know about your tax return
If you have received a lump sum or income stream from a taxed fund after age 60 you do not need to include anything on your tax return unless it is a capped defined benefit income stream, or it is a death benefit and you are not a tax dependant of the deceased.
If you have received amounts from an untaxed fund, you will need to complete the details at the labels for superannuation lump sums and/or superannuation income streams. Any tax offset you are entitled to from an income stream must be added separately in the tax offsets section of your return. If the amount is a terminal illness lump sum or death benefit lump sum and you are a tax dependant of the deceased, you do not need to include anything on your tax return as these amounts are tax free.