Using a Superannuation Recontribution Strategy to Improve Estate Outcomes

When it comes to estate planning, many Australians overlook a crucial consideration: the tax their beneficiaries may face when receiving superannuation death benefits. While superannuation is designed to support your retirement, its structure also has long-term implications for how your wealth is transferred to the next generation.

A super recontribution strategy is a powerful, lesser-known tool that can significantly improve the after-tax value of the legacy you leave behind. By restructuring your superannuation components, you can reduce the tax burden on non-dependent beneficiaries, align with estate planning goals, and equalise super balances between spouses.

Understanding how and when to use a recontribution strategy can unlock meaningful advantages in intergenerational wealth planning.

What Is a Superannuation Recontribution Strategy?

A superannuation recontribution strategy involves withdrawing a lump sum from your super and then re-contributing it as a non-concessional (after-tax) contribution. This strategy effectively converts a portion of your super from taxable to tax-free, potentially lowering the death benefits tax payable by your beneficiaries.

It’s only available once you meet a condition of release, such as reaching age 60 and retiring, or turning 65 regardless of work status. The strategy is particularly valuable for those with large taxable components who intend to pass superannuation benefits to adult children or other non-tax dependants.

Because superannuation death benefits paid to non-dependants (under tax law) can attract a 15% tax on the taxable component, this strategy can result in significant savings for your estate.

Estate Planning Benefits of a Recontribution Strategy

While recontribution is not a one-size-fits-all solution, it can provide measurable estate planning advantages, especially when applied as part of a broader financial plan.

● Reduce the Taxable Component

By recontributing as a non-concessional contribution, you reduce the proportion of your superannuation that is taxable upon death. This can directly reduce the tax paid by your adult children or other non-dependent heirs.

● Minimise Death Benefits Tax

For non-dependants, super death benefits from the taxable component are taxed at 15% plus Medicare levy. A recontribution strategy can significantly reduce this tax impact, preserving more of your estate for your intended beneficiaries.

● Maximise After-Tax Inheritance

A strategic recontribution can increase the tax-free component of your superannuation balance, helping ensure your beneficiaries receive more of what you intended, without unnecessary erosion from taxes.

● Equalise Super Balances Between Spouses

In couples where one spouse holds the majority of the superannuation, recontribution can help rebalance superannuation holdings. This not only supports more equitable estate outcomes but can also maximise access to transfer balance caps and other retirement income stream benefits.

Eligibility and Key Considerations

While a recontribution strategy can offer compelling benefits, it is not suitable for everyone. Key eligibility factors and considerations include:

● Contribution Caps

Non-concessional contributions are subject to annual caps, $120,000 per year or up to $360,000 under the bring-forward rule (available if under age 75 and within certain balance limits).

● Withdrawal Conditions

You must have satisfied a condition of release. For retirees, this usually means reaching preservation age and ceasing gainful employment, or turning 65.

● Age Limits and Work Test Exemptions

Recent changes now allow individuals aged 67-75 to make non-concessional contributions without meeting the work test, provided other conditions are met.

● Timing and Compliance

The timing of withdrawals and contributions needs to be carefully managed to comply with caps, avoid excess contribution tax, and align with estate planning documents such as binding death benefit nominations.

Example Scenarios

Reducing Tax for Non-Dependent Beneficiaries

Chris is 67, retired, and has a superannuation balance of $800,000, of which $700,000 is taxable. He plans to leave his super to his adult children. By implementing a recontribution strategy, Chris withdraws $300,000 and recontributes it as a non-concessional contribution. This reduces the taxable component and saves his children approximately $39,000 in death benefits tax.

Super Equalisation Between Spouses

Angela and Mark are both in their early 70s. Mark has $1.6 million in super, while Angela has $200,000. By withdrawing from Mark’s account and recontributing to Angela’s (subject to eligibility and contribution caps), they equalise balances, optimise their transfer balance cap opportunities, and create a more tax-efficient estate outcome.

Making It Work for You: Strategy, Timing, and Trusted Advice

A recontribution strategy can offer significant advantages, but its success depends on more than just timing and tax calculations. It requires a clear understanding of your superannuation structure, estate intentions, and the broader implications for your retirement plan.

Poorly timed withdrawals, excess contributions, or overlooking transfer balance caps can easily undo the benefits. Centrelink entitlements may also be affected, and without careful alignment to your estate plan, particularly your death benefit nominations, opportunities can be lost.

This is where strategic advice matters. At Annex Wealth, we help you assess whether a recontribution strategy aligns with your goals, model the potential benefits, and manage the complexities with confidence. It’s not about following a template; it’s about building a plan that reflects your life, your legacy, and your long-term financial well-being.

If you’re thinking about how best to preserve and pass on your wealth, this is a conversation worth having. We’ll help you make informed decisions today that support the outcomes you want tomorrow.