Building a joint financial future – superannuation strategies for couples

Picture this: you and your partner, hand in hand, stepping into a future filled with financial freedom and shared dreams. And when it comes to those aspirations, superannuation strategies for couples play a pivotal role.

At First Financial, we empower individuals and couples to retire on their terms. We offer tailored superannuation advice that not only ensures financial security but also guarantees a sustainable future.

If you’re looking to build a joint financial future with your significant other, there are a number of superannuation strategies for couples that you should consider.

Spouse contribution splitting involves transferring a portion of one partner’s superannuation contributions to their spouse’s super account. It is a before-tax (concessional) contribution. This strategy applies to marital and de facto partners and can be very tax-effective, particularly when there’s a substantial difference in super balances.

To qualify for spouse contribution splitting, you must meet certain rules and requirements. These include:

• Both partners must be Australian residents.
• The receiving spouse must be under their preservation age or between their preservation age and 65 and not yet retired.
• The contributing spouse’s age must be below 75.
• The maximum allowable transfer amount equals 85% of before-tax contributions for the financial year.

Contribution splitting offers several advantages to couples. It facilitates the equitable distribution of savings between partners and can also enable earlier and tax-free access to superannuation funds, which is particularly advantageous when there’s an age disparity between spouses.

Additionally, it can boost aged pension entitlements by keeping the younger spouse’s assets unassessed during the accumulation phase while they are below pension age. It also simplifies estate planning, ensuring equal access to superannuation funds in case of unexpected loss.

A spouse contribution is a strategy where you make after-tax contributions to your partner’s super account, increasing your combined savings. If your partner earns under $40,000 annually, common in situations where one partner works reduced hours for health or family reasons, you could be eligible for a $540 tax offset. You must make the contribution payment to a complying super fund and then claim the offset on your tax return. This offset doesn’t apply to split contributions.

Recontribution involves withdrawing a lump sum from your super account, paying the required taxes on that amount and then making a personal contribution back into a super account as a tax-free, non-concessional contribution.

This strategy provides an opportunity to balance super fund accounts between spouses, especially when one nears the transfer balance cap while the other remains significantly below it. It allows couples to maximise the total amount eligible for transfer to the pension phase in retirement.

Both spousal contributions and recontribution can be valuable superannuation strategies for couples. However, they come with specific rules and requirements, and missteps can lead to negative financial consequences. That’s why it’s important to consult your financial adviser to determine the most suitable strategy for your unique circumstances.

An SMSF is a private superannuation fund that allows individuals, including couples, to have more control over their retirement savings. Couples can choose to establish and manage an SMSF together, pooling their resources and investments to work toward their long-term financial ambitions.

This approach offers benefits beyond control, including flexibility in investment choices and the capacity to harmonise investment strategies with personal goals and values. This might be the right option for your situation if you and your partner are in alignment regarding the fund’s direction, investment objectives and risk tolerance.

However, an SMSF entails increased responsibilities, including compliance, record-keeping and reporting. At First Financial, we specialise in SMSF management, and we recommend consulting an SMSF professional to determine suitability.

Downsizing to a more affordable home before retirement provides significant financial advantages. Choosing a smaller residence can lead to savings on ongoing expenses and maintenance. Regardless of your new home’s size, downsizing unlocks equity that can enhance your superannuation through a downsizer payment.

Australians aged 55 and over can make a downsizer contribution of up to $300,000 to a complying super fund as long as they’ve owned the property for at least 10 years. As long as your spouse is also over 55, they too can contribute up to $300,000 to their own super, whether they are an owner of the property or not.

Downsizer contributions do not count towards any contribution caps, and the total super savings test does not apply.

They are an after-tax contribution, making them a tax-efficient strategy. If downsizing is right for your family, this can be a highly financially beneficial way to bolster the superannuation balances of both partners.

Superannuation strategies for couples are a valuable consideration for partners of all backgrounds and compositions. However, their importance becomes particularly evident in partnerships marked by significant superannuation balance disparities. Statistically, this disparity often negatively affects women, reflecting enduring gender pay gaps and the common career breaks many women take for child-rearing responsibilities.

Given current divorce rates, you might hesitate to combine superannuation, fearing the potential consequences of a split. However, it’s worth noting that superannuation is a divisible marital asset. As a couple, maximising your superannuation can strengthen your financial future, and in the event of a divorce, assets can be divided fairly.

Mastering superannuation choices can be overwhelming, but you’re not alone. First Financial specialises in smart, tax-effective strategies, including strategies for couples. Talk to an experienced, friendly member of our team today to learn more.

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