Why did I have to pay $18,000 in tax when consolidating my super
I had two retirement accounts and recently combined them to save on fees. The recipient fund informed me that I would lose $18,500 to the tax authority due to the rollover of the $123,000 untaxed component. Why is tax charged when transferring money between retirement funds? And of course, before consolidation could happen, someone should have flagged that this tax would be levied.
An untaxed component in super is pretty rare these days and so I can easily see how this could have been overlooked. For most of us, when our employer contributes to our retirement fund, a 15 percent tax is collected by the fund and transferred to the tax office.
Combining two super accounts? Pay attention to the untaxed parts.Credit: Simon Letch
For untaxed pension, this 15 percent is not deducted at the time the contribution is made. Tax-free super fare doesn’t mean a free lunch. The box is kicked onto the road. At some point, untaxed superannuation will generally become taxed at the point it becomes an income stream. Rollovers, like the one you just experienced, are another example.
Untaxed retirement benefits are available only to some federal and state government employees and may also result from insurance benefits. An untaxed pension may give you an inflated idea of how much pension savings you have for retirement.
It would have been better if you had been informed in advance that this tax would be deducted, but you were not a victim. At some point, all non-taxable pensions will become taxable and taxable pensions. You have now left this transformation behind you.
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We hope to pack up our family and go abroad for a year. My wife and I are 40 and 42 years old and we have three young children. We are thinking of selling our house before we go. After paying off our mortgage we should have saved about $900,000. We are wondering what you suggest we do with this money for this year. We’ll need to access some for travel, then when we return we’ll need to buy a new home.
Wow, this looks like a great plan, well done! Given that you have a year and need some access, I would keep those proceeds in the bank. Even a conservative/balanced mutual fund will have a minimum recommended time frame of three years.
Research the account that pays the best interest. Some of the options you see will require deposits every month and no withdrawals.
