Super balance strategies and considerations for couples

Your TSB can impact your ability to make certain types of contributions, such as non-concessional (after-tax) contributions, and whether you can access government co-contributions or make spouse contributions.

If your TSB exceeds specific thresholds, you may also be restricted from making bring-forward non-concessional contributions or from accessing the carry-forward concessional contribution rules.

Because of the wide-ranging impacts from these limits and restrictions, it’s important to keep track of your TSB and understand how it may affect your retirement planning strategies.

The super rules also limit the amount that you can move from the accumulation phase of super into the tax-free retirement (pension) phase. This is referred to as the transfer balance cap (TBC).

Any amount of your overall super balance that is above the TBC must remain in your accumulation account, where the earnings are taxed in the super fund or, if you are eligible, can be withdrawn from the superannuation system.

The benefits of a combined approach

Some of the benefits from taking a combined approach to superannuation savings include:

Staying below a TSB of $500,000 so you can make larger concessional contributions

If you don’t use your full concessional contribution cap each year, you can carry forward the unused amount for up to five years.

This could allow you to make larger concessional contributions in future years and potentially reduce your tax bill, making it especially useful if your income varies year to year or if you have the capacity to contribute more towards your super at a later stage.

In order to make a larger concessional contribution using these carry-forward amounts, your TSB must be within the $500,000 threshold on the prior 30 June.

If you are looking to use this strategy but your TSB is approaching the maximum balance allowed of $500,000, you could consider implementing a spouse strategy to move some of your super balance to your spouse’s super account.

Managing the TBC for both spouses

The TBC is a limit on the total amount of super that can be transferred into a tax-free retirement account, such as an account-based pension. This cap ensures that individuals do not receive excessive tax-free earnings from their super in retirement. Amounts above the cap can remain in the accumulation phase, where earnings are taxed at a concessional rate, but cannot receive the same tax-free treatment as those within the cap.

Where one spouse’s super balance is above this cap, it may prove beneficial to move some of their balance into their spouse’s account, so both can fully utilise their own TBC and maximise balances held in the tax-free retirement phase.

Staying below the Division 296 tax threshold

With the proposed introduction of Division 296 tax, which will apply additional tax to earnings on member balances over $3 million, it makes sense to try and keep both spouse balances below the relevant threshold where possible.

Having one spouse’s balance above the threshold and one well below would not usually give the best tax outcome. In such cases, moving some super from the spouse with the higher balance to the spouse with the lower balance may help reduce or eliminate the additional tax.

How a combined spouse approach works

There are a number of strategies that can be used to get the best combined outcome for a couple, including spouse contributions, super contribution splitting and consolidating member funds.

Contribution splitting

A great way to maximise spouse retirement savings or equalise member balances is to use a contribution-splitting strategy.

The super rules allow you to move up to 85% of the splitable contributions made into your super fund in the prior financial year and transfer them into your spouse’s super account in the current financial year.

Splitable contributions include your own personal deductible (concessional) contributions and employer contributions like your super guarantee contributions or salary-sacrifice contributions.

This strategy can only be implemented where the receiving spouse is either under 60 or aged between 60 and 65 and not retired. You can’t apply to split your contributions if your spouse is aged 65 or over.

Carrying out a spouse contribution-splitting strategy over a number of financial years can be extremely effective in equalising overall spouse balances. It can also assist in keeping the spouse with the larger balance below the legislated TSB threshold, which could allow further contributions to be made in the following financial year.

Spouse contributions

Spouse super contributions are payments that you make into your spouse’s super fund, usually to help grow their retirement savings. You may even be eligible for tax benefits if your spouse is not working or if their earnings are below a certain threshold.

Contributing to the spouse who has the lower super balance will help equalise member balances and, again, could allow the spouse with the larger balance to stay within the TSB limits and constraints.

It’s important to check with your super fund about how to make these contributions and any rules that apply.

Recontribution strategy for a spouse

A spouse recontribution strategy is another way to maximise both spouses’ super balances. This can work where you have unrestricted access to your own super balance.

It is carried out by withdrawing super from one partner’s account and contributing it to the other partner’s super fund as a non-concessional contribution. This approach can help equalise super balances between spouses, maximise the use of both partners’ TBCs and potentially reduce the impact of future tax on super benefits.

It is particularly useful for couples where one partner’s balance is significantly higher than the other’s or where one partner is nearing the TBC.

Before proceeding, it’s important to consider contribution caps, TSB limits and eligibility requirements around your age and the work test.

Self-managed super funds (SMSFs)

It is important to note that none of these issues or strategies are specific to SMSF members. They are relevant for members of most types of super funds.

However, members of SMSFs may find it easier to carry out or implement some of these strategies, as the ‘movement’ of member balances between spouses is taking place within the same fund.

For instance, a contribution-splitting strategy could be carried out with paperwork and internal transfers of balances without the need to sell assets to create enough cash to fund the transaction.

The bottom line

It’s also important for couples to review their super regularly, considering factors like fees, investment options and insurance cover. By working together and making the most of BOTH members’ superannuation caps and limits, couples can boost their financial security and get the best outcomes in retirement.