Balancing wealth between spouses

Improve wealth efficiency

As the saying goes ‘two heads are better than one’, and this is especially the case when it comes to tax and superannuation. As the rules apply per individual, it is often tax effective to spread income and assets between spouses where possible and doing so has become more of an incentive after the introduction of the $1.7 million cap on super balances.

It is common to see unequal super accounts amongst couples, particularly if one partner has taken time off work to care for children or family, worked part-time or earned a lower salary than their spouse for most of their career. Unequal super balances are also common where one spouse has been contributing to a generous defined benefit super fund such as the Commonwealth Superannuation Scheme (CSS) or Public Sector Superannuation Scheme (PSS).

If couples are willing to work together to strategically spread their wealth, they could build a combined retirement nest egg of $3.4 million* and maximise the amount in the tax-free retirement phase. This makes super still one of the most attractive vehicles to save for retirement – to have the ability to invest $3.4 million with no tax on investment earnings and no tax on withdrawals over age 60 is not an incentive to overlook.

Strategies to equalise retirement wealth

If you are both working, you can plan ahead and implement balancing strategies each year to help equalise accounts by the time you retire. Higher income earners are offered a tax offset of up to $540 if they top up their spouse’s super by $3,000 – this provides a double benefit via a tax saving for the higher income earner and a boost to the smaller super account. If you don’t have the extra cash flow to commit to super, concessional (pre-tax) contributions, such as employer contributions or salary sacrifice, can also be transferred between spouses’ super accounts after the end of each financial year.

Couples at the end of their career may still have time to rebalance by utilising non-concessional (post-tax) contribution caps. Provided the right conditions are met, this enables those under age 75 to withdraw up to $330,000 from their super fund and re-contribute into their spouse’s smaller super account. Generally, it is best to wait until at least age 60 and permanently retired because at this point the withdrawal of $330,000 can be made tax free. This might seem too late but because of the bigger non-concessional contribution limits, couples may be able to equalise their super balances in just a few years after retirement.

Work through the complexities with a super specialist

In practice, there is much to consider and work through before implementing re-balancing strategies including contribution rules and limits, as well as death benefit and estate planning implications. The long-term benefits can be significant and to ensure you don’t miss out on the savings, speak to your adviser about who can help you.