Labor Super Class War
I generally don’t get involved in politics, but there’s much discussion on super and it may impact us middle/wealthy class. The number in discussion is 3 million possibly being taxed more in super. The issue isn’t the number, but more so on whether or not the balance will be indexed to inflation or not. 3 million in today’s dollars wouldn’t be worth the same value 20+ years from now come retirement.
There’s a few factors to be considered. Would the balance include property value (eg in SMSFs)? It shouldn’t since property is not liquid assets. Should the balance be indexed to inflation? It definitely should be adjusted for inflation. Should the balance have exemptions? It should very well exempt the first 3 million of the balance. Should the tax be tiered? It should be tiered similar to the ordinary tax rate, but through CGT on realized gains, not based on the invested balance.
A few more factors. There are concessional and non-concessional contributions. So Kathy’s super is concessional, and mine is non-concessional (after tax).
From the ATO:
You will not be eligible to make non-concessional contributions if your total superannuation savings exceed the general transfer balance cap of $1.6 million (current for FY2020/21) or more as at 30 June of the previous year. Once you reach age 60 you can normally access your super tax free.
What would Nomad FI do?
Depending if the 3 million will be indexed or not, as well as if the first 3 million would be exempted from the balance, we can force our super balances lower through withdrawals since there’s no limit. Since it’s based on individual balances, that’s up-to 3 million per individual. Kathy 3 mill, my super 3 mill. That’s a total of 6 mill. Using the bucket method, we use one to fill up the other. Once we’re both up-to 3 mill each, then we withdraw and invest the funds in each of our taxable accounts. Taxable accounts are taxed based on the individual’s ordinary tax rate, and utilizing the LTG discount at 50%, each of us will fill up two more buckets, essentially tax free if our CGT is within the marginal tax brackets. Once we’re both over our taxable accounts marginal tax rates, we can invest in the family discretionary trust account as well and we can determine our own distributions. However, this would depend where we’ll be living at since the family discretionary trust requires for the controlling parties to be residing in AU to be in compliance.
WHT is currently 15% and tax free on withdrawals in super. If we compare how the 401K works, it’s pre-tax contributions, but you’re taxed on withdrawals based on the ordinary tax rate. Both works differently in their own way, but taxable accounts are the same tax treatment in both US and AU. There’s also a family discretionary trust that we can consider. Win!
