What happens if my super balance is over 1.9 million?

Navigating the Million-Dollar Superannuation Question: What Happens When Your Balance Exceeds $1.9 Million?

Retirement planning often involves aiming for a comfortable nest egg. However, exceeding the government’s concessional contributions cap and reaching superannuation balances significantly above the current $1.9 million threshold triggers specific rules and tax implications you need to understand. This article explains what happens when your super balance surpasses this limit.

The $1.9 million figure isn’t a hard limit on the total amount you can hold in superannuation. It relates to the transfer balance cap, which governs the amount you can transfer from your accumulation account to a retirement income stream (like an account-based pension). This transfer is crucial because income earned within a retirement phase is generally tax-free.

So, what if your total super balance exceeds $1.9 million? You essentially have two primary options for managing the surplus:

1. Transfer to an Accumulation Account: This is the most straightforward approach. Any amount above the $1.9 million transfer balance cap remains in your accumulation account. This means your earnings will continue to be subject to tax, currently at 15% for most contributions. However, this option avoids immediate tax implications relating to excess transfer amounts. This is generally the preferred approach for those who anticipate needing access to funds before retirement age, or who prefer to maintain flexibility over their superannuation.

2. Withdraw as a Lump Sum: This option involves withdrawing the amount exceeding the $1.9 million cap as a lump sum. This triggers a significant tax event. While the tax rate for this depends on several factors, including your age and whether you’ve previously exceeded the transfer balance cap, the tax rate will typically be between 15% and 30%. A 30% tax rate applies if you’ve already been subject to an excess transfer tax. The withdrawal may also impact your eligibility for government age pension benefits, so careful consideration is required.

Understanding the Tax Implications of Excess Transfers:

The 15% and 30% tax rates mentioned above apply specifically to earnings on amounts exceeding the transfer balance cap, not the entire balance. The tax is levied on the excess above the $1.9 million limit. For example, if your balance reaches $2 million, the tax would be applied only to the earnings generated on the $100,000 excess. This tax is calculated by the superannuation fund.

Seeking Professional Advice is Crucial:

The intricacies of superannuation legislation can be complex. Navigating the rules surrounding exceeding the transfer balance cap requires careful consideration of your individual circumstances, age, financial goals, and tax implications. Consulting a qualified financial advisor is strongly recommended to ensure you choose the most appropriate strategy to manage your superannuation and avoid potential tax penalties. They can help you develop a personalized plan that aligns with your retirement objectives.

This article provides general information only and does not constitute financial advice. Seek professional advice before making any decisions regarding your superannuation.