An SMSF educator has dispelled the commonly held misconception a new fund is required to be established when a member commences a pension and has confirmed drawdowns can be made from an individual’s accumulation account.
“When we contribute to super, those monies go into what we call an accumulation account. When we start to draw down on our super, and if we commence a pension, we have this concept of commencing a pension account, but it’s not a separate SMSF,” mySMSFjourney founder Tracey Besters told smstrusteenews.
“So if we’ve got one SMSF, we can have multiple accounts that sit within it. We’ll have only one accumulation account, but we can have multiple pension accounts. I’ve got clients with half a dozen pension accounts because of the tax components that sit within them.”
Besters clarified it is not compulsory for fund members to commence a pension if they want to start taking money out of an SMSF, but it is common practice to do so due to the tax benefits associated with this course of action.
“You can take a lump sum withdrawal from super out of your accumulation account provided you have attained preservation age and met a condition of release. The downside with that strategy is any earnings from your accumulation account will not enjoy a zero tax rate as is the case for earnings from assets supporting a pension,” she noted.
“So you’ve got to commence and take the regular income stream payments in order to receive the further concessional tax rate on earnings of 0 per cent.”
She pointed out earnings generated from investments in a member’s accumulation account will still receive the standard concessional tax rate of 15 per cent, but will never be reduced to zero even if the individual in question has satisfied a full condition of release, such as reaching age 65.
Tracey Besters will be covering this subject in greater detail at SMSF Trustee Empowerment Day 2024, co-hosted by smstrusteenews and the SMSF Association, at Rydges Sydney Central on 17 September and at the Melbourne Convention and Exhibition Centre on 19 September. Click to register.
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