How much super can you withdraw tax-free? Are all super withdrawals taxed? 

Will you pay more tax if you get super as regular payments? 

These are questions you need to know the answer to, especially if you are close to retirement and thinking about accessing your superannuation account.

In the article below, we will explain all you need to know about super withdrawals and tax.

How Much Super Can You Withdraw Tax-Free

To answer this question, you first need to understand whether the money in your superannuation account is tax-free or taxable upon withdrawal. 

As the name implies, the tax-free component of your super can be withdrawn tax-free (both as a lump sum and income stream), while you need to pay some tax when you access the taxable component of your super. 

Note: If you illegally access your super, then all the superannuation in your account becomes taxable, whether it was tax-free before or not.

Tax-free vs Taxable Super 

Whether the assets in your super account are tax-free or taxable when you withdraw it generally depends on the type of contributions made and whether tax was paid on it.

The tax-free component consists of: 

  • Your non-concessional contributions (they come from your after-tax income)Government co-contributions

Concessional contributions, on the other hand, are the taxable component of your super.

Concessional contributions include the money your employer pays under the Super Guarantee, super contributions that you claimed a tax deduction for and salary sacrifice payments into your super. 

Furthermore, the taxable component can consist of a taxed and untaxed element, depending on whether the contributions came from a taxed or untaxed source. 

If your provider has paid the 15% tax on concessional contributions, this money is now the taxed element of your taxable super. 

However, if the provider has not paid tax on your concessional contributions, the funds form the untaxed element of your taxable super. Untaxed super funds are usually run by Commonwealth, State or Territory Governments, so generally, only people who receive payments from the public sector might have an untaxed element in their superannuation fund. 

How Is Superannuation Taxed?

In most cases, the super you withdraw will have a tax-free and taxable component. Your super provider will calculate how much is tax-free and how much of your account balance is taxable when you apply to access your superannuation account. 

Sadly, you cannot withdraw the tax-free part of your super only, unless the total balance is tax-free. 

Note: Different superannuation withdrawal rules apply to members of a defined benefit trust and a Self-Managed Super Fund. 

Is Super Taxed When Withdrawn?

As mentioned above, the super tax rate on withdrawals depends on several factors, mainly your age. Here is a closer look.

If you are over 60 years old 

Super members who access their account after 60 do not pay tax on super withdrawals. 

You only pay tax (up to 17%) if there is money in your superannuation account that comes from an untaxed super fund. 

If you are between your preservation age and 60 

Lump sum super tax

  • The tax-free component: No taxTaxable component:Taxed element: You can withdraw super without paying tax up to the low rate threshold of $230,000. Any amounts withdrawn over the low rate threshold will be taxed up to 17%.Untaxed element: up to 32% tax rate, or up to 17% (plus the Medicare levy) if you withdraw less than $230,000.

Superannuation income stream tax

  • The tax-free component: No taxTaxable component:Taxed element: Marginal tax rate, although you can claim a 15% tax offsetUntaxed element: up to 17% under the low rate threshold, or up to 32% if you withdraw more than $230,000.

Keep in mind that the taxable component of your super needs to be included in your tax return as assessable income. Even if you do not pay superannuation income tax, you still must include the amount. 

  • Taxed element: You can withdraw super without paying tax up to the low rate threshold of $230,000. Any amounts withdrawn over the low rate threshold will be taxed up to 17%.Untaxed element: up to 32% tax rate, or up to 17% (plus the Medicare levy) if you withdraw less than $230,000.

  • Taxed element: Marginal tax rate, although you can claim a 15% tax offsetUntaxed element: up to 17% under the low rate threshold, or up to 32% if you withdraw more than $230,000.

Note: Those who have reached their preservation age but are still working, i.e. transition to retirement typically pay up to 15% tax on the sum they receive.

If you are under the preservation age

Typically you cannot withdraw super until you reach your preservation age (which is not the same as your retirement age). However, there are certain circumstances that allow you to access super early. If this is the case, superannuation is taxed as follows: 

Lump sum super tax 

  • The tax-free component: No taxTaxable component:Taxed element: up to 22% tax rate (+ Medicare Levy)Untaxed element: up to 32% tax rate. All amounts over the untaxed plan cap of $1.650 million will be taxed at your marginal tax rate.

  • The tax-free component: No taxTaxable component:Taxed element: Marginal tax rate Untaxed element: Marginal tax rate

Note: Those under the preservation age who are accessing super because of disability are entitled to a 15% tax offset. 

  • Taxed element: up to 22% tax rate (+ Medicare Levy)Untaxed element: up to 32% tax rate. All amounts over the untaxed plan cap of $1.650 million will be taxed at your marginal tax rate.

  • Taxed element: Marginal tax rate Untaxed element: Marginal tax rate

Tax on super death benefits

You can choose what happens to your super when you die by nominating a beneficiary to receive your remaining superannuation balance. 

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The payments your beneficiaries receive may be subject to a super tax rate, depending on your age, the age of the deceased, your relationship to them and the manner in which super is paid out. 

If you are tax dependant of the deceased (i.e. spouse or partner, current or former, child under 18, financially dependent or in an interdependency relationship with the deceased), you will not need to pay tax on the super benefit you receive. 

Non-tax dependants will need to pay tax on the taxable component of the super death benefit as follows:

  • Taxed element: up to 15% + Medicare levyUntaxed element: up to 30% + Medicare levy

Tax-dependants can also access the super death benefit as an income stream. 

If the funds are coming from a taxed super fund and you and your beneficiaries are under 60 when you die, the taxable component of income stream payments will be subject to regular income tax, less a 15% tax offset. 

After the beneficiary turns 60, they will not need to pay tax on income stream payments. 

If the money is coming from an untaxed super fund, it is considered assessable income. A tax offset of 10% is available but only if the deceased and the beneficiary were over 60 at the time of passing. 

Bottom Line: Do You Get Taxed on Super?

You may be required to pay tax on super withdrawals if you access your superannuation account before 60, but only if the money in your super comes from before-tax income and savings. Unfortunately, when it comes to tax in Australia, there is no simple answer.

Therefore, all super account holders, even super members over 60 years old, should contact a financial consultant who can provide expert advice on how and when you should withdraw super without spending a fortune on tax. 

1. Is super tax-free after 60?

In general, yes. If you are over 60 you do not pay tax on super withdrawals, whether they are paid as a lump sum or regular income stream. 

2. When can I access my super tax-free?

You can usually access your super without paying tax after 60. However, if you are over the preservation age and under 60, or you are accessing super early due to disability or illness, your super withdrawals will be taxed at 17% or your marginal rate (whichever is lower) or up to 22% (plus the Medicare levy), respectively. 

3. How much super can you withdraw tax-free at once?

You can only withdraw your super as a lump sum without paying tax once you are 60 years of age. Otherwise, you can only access the tax-free component of your super without paying tax on withdrawals, which does not include the payments your employer contributes to your superannuation account.