SMSF Strategy Guide: Online Library

Retirement strategies

SMSF Education
Smsf strategy guide: Online library

The re-contribution strategy


As part of a member’s initial ‘tax and pension’ retirement strategy when they retire, the re-contribution strategy is one that may have significant benefits. The immediate benefit can be for those starting pensions prior to age 60, however the longer term benefits relate more to the death benefits that eventually flow to adult children.


The re-contribution strategy involves withdrawing money from your SMSF account balance – assuming a member has met a condition of release such as retirement – and re-contributing it as a non-concessional contribution.

This has the effect of converting the previously taxable component of a member’s super account to all tax free component.


If a member is under age 60, it enables them to get a better tax outcome on any SMSF pensions they may wish to draw.

If they are over age 60, the pensions are tax free anyway. So why would anyone do it ?

In this scenario, its all about getting a better estate planning outcome, and saving what can sometimes be a lot of tax for future death benefit payouts. Probably the bet way to illustrate is to look at an example.


Jack and Jill are both age 62 and are retired. They have $300,000 each or $600,000 combined in their SMSF. Out of this total, $100,000 is tax free component, whilst $500,000 is taxable component.

If they were to both pass away, and their benefits were paid out to their adult children, then their adult children would pay 17% tax on the taxable component of those lump sum payouts from the SMSF (15% + medicare levy)

That totals $85,000 in death benefits tax.

That’s a lot of tax money. Can a re-contribution strategy help ?

Firstly, they withdraw the $600,000. This is taken tax free as they are both over age 60.

Next, they contribute this money as $300,000 each back into the SMSF as non-concessional contributions. They use the bring forward provisions to keep this under the contributions cap, and we are assuming here they have not triggered it in the past 3 years.

By doing this, they convert all the money in their fund to tax free component.

They then commence SMSF account based pensions, locking in the tax free proportion to 100%.

The end result being that they have eliminated the $85,000 of future death benefits tax.

Note that this is a very specific circumstance, and that individual circumstances do vary widely.

In the circumstances where only one partner dies, if the benefit is paid out to the other spouse, then that particular amount would have been tax free anyway before the re-contribution strategy, as a spouse is what is known as a death benefits dependent. But it wont be for the remaining spouse’s account on their death. There are various other combinations of possible outcomes that are outside the scope of this article, but suffice to say that, depending on a members individual circumstances, a re-contribution strategy could be an important consideration when looking at retirement and estate planning. This is certainly where some professional help will be useful.

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