Things to know if you are over 55 and still working
TRANSITION to retirement pensions are (TTR) still a tax-effective strategy.
The strategy allows access to your super money before retirement in the form of a pension.
A TTR strategy could help you with one of the following:
- Ease into retirement by reducing working hours but still maintain your take-home income.
- Boost your savings and maintain your income.
- Boost your take-home income.
In most cases, a maximum tax of 15% applies on the contributions in super you make with pre-tax income.
This compares to paying tax at your marginal rate which can be as high as 46.5%. And when your super is paid to you as a pension, the investment earnings within the fund are tax-free.
Income payments you receive are taxed concessionally or tax free, depending on your age and circumstances.
Mature Age Workers Tax Offset (MAWTO) was abolished from July 1, 2012 for individuals born after July 1, 1957.
Accordingly no individuals qualify on turning 55 after that date.
The MAWTO is available (maximum $500) if aged 55 or over at the end of the financial year and is based on income derived from working minus any related deductions.
The offset can only reduce the tax liability to nil and any unused amount cannot be refunded. The phase-out of the offset may increase tax bills for some.
The Work Bonus for Age pensioners provides an income test concession on employment income earned after turning age pension (or service pension) age for those who receive the standard rate of pension (excluding transitional pensioners).
The first $250 per fortnight of employment income does not count under the income test. This may result in up to an extra $125 of age pension per fortnight (approximately $3250 a year) for single pensioners or for each member of a pensioner couple. Any unused work bonus accrues up to a maximum of $6500.
Individuals who are still working and are registered in the 'old' pension bonus scheme may still continue to accrue those entitlements.
Rick Rutten is an authorised representative of RI Advice Group P/L. This editorial is general advice only.