Selecting the right type of account for your stage of life

5 minutes  
Date: 14 May 2019

Take outs

  • Each account has different characteristics and taxation rules
  • Accumulation accounts are used to build wealth for retirement
  • A pension account can't accept additional contributions or subsequent rollovers

 

Making the decision to wind up your SMSF can be tough. There are many steps you must carefully consider, including the establishment of accounts with your chosen superannuation provider.

There are several types of accounts on offer. Picking the right one depends on your life stage.

SMSF members can combine their super balances to invest in a pooled strategy. And, the one combined fund may have a mixture of accumulation and pension accounts for each member.

There are two main account types – accumulation and income streams (pensions). 

Pensions can be either transition to retirement pensions or a standard income stream.

Depending on the type of account you pick, there are different characteristics and taxation rules with restrictions on your ability to make additional contributions and receive an income stream.

Individuals may also require multiple accounts if they are in both in the accumulation and in the pension phase.

This article contains some of the key considerations in winding up your SMSF and choosing a new account, however as this is a significant decision, it is recommended that you seek personal advice relevant to your individual circumstances and needs.

Winding up your SMSF

With various changes impacting SMSFs, we’ve compiled a guide packed with information to consider if you have an SMSF. Understand the differences between a public offer super fund and SMSF, hear from those who’ve made the switch, understand the tax implications and use our checklist if you’ve decided to wind up your SMSF.

Download the guide

Accumulation accounts

Accumulation accounts are used to build wealth for retirement.

In an accumulation account, any investment income and capital gains generated on the sale of assets within the fund is taxed at the concessional rate of 15 per cent.

A one-third tax discount is received for capital gains generated from assets that have been held for longer than 12 months. This means that the effective tax rate is 10 per cent.

Additional contributions are allowed under an accumulation account, but they are subject to the contribution rules.

You can’t receive a regular income stream from accumulation accounts because they are used to build wealth. You can however, access a lump sum payment if you have met a necessary condition of release.

Transition to retirement

A transition to retirement pension allows you to draw down some income from your super, if you’ve reached your preservation age and are still working, to supplement your income from work.

Like with an accumulation account, tax on income and capital gains is treated as follows:

  • Investment income and capital gains generated on the sale of assets is taxed at the concessional rate of 15 per cent; and
  • A one-third tax discount is received for capital gains generated from assets that have been held for longer than 12 months.

A pension account, however, can’t accept additional contributions or subsequent rollovers once established. A pension is usually commenced by transferring a lump sum up to the transfer balance cap from an accumulation account.

This type of account can be transferred back to an accumulation account at any stage, however, should you wish to start a new retirement account with additional funds.

In saying this, you can have a transition to retirement account or a standard income stream at the same time as an accumulation account.

Unlike the accumulation account, a transition to retirement account allows you to receive an income between 4 per cent and 10 per cent of your account balance each financial year. You can also nominate your amount and payment frequency.

Standard income stream

You can commence a retirement income stream once you’ve met a necessary condition of release. You can use the proceeds from your super balance up to the transfer balance cap (currently $1.6 million) to generate an income.

Under this income stream, there’s no tax payable on investment earnings or capital gains and any franking credits earned are passed back to the member.

But, like the transition to retirement account, a standard income stream account cannot accept additional contributions or subsequent rollovers once established.

Regular ongoing pension payments are allowed, but there is an annual minimum amount you need to withdraw based on your age. There are, however, no maximum restrictions.

 

More on selecting the right type of account for your stage of life

If you’ve made the decision to wind up your SMSF and need some assistance, download our guide on Winding up your SMSF the right way and talk to your financial adviser.

Further SMSF resources

Learn more about the reasons some people wind up their SMSF, the differences between public offer super funds and SMSFs and read about different account types to suits your stage of life.

 

The differences between super funds and SMSFs

Depending on where you are in life, there are several types of accounts that could suit your superannuation needs.

Read more

If an SMSF is no longer for you, wind it up

SMSFs can be highly advantageous, however there are several reasons that have prompted people to consider leaving their SMSF behind.

Read more

Can you take your SMSF overseas?

If you have a SMSF and you're planning to move overseas, there are risks and requirements you need to understand and plan for.

Read more

Selecting the right type of account for your stage of life

Depending on where you are in life, there are several types of accounts that could suit your superannuation needs.

Read more

Find out more about our super offering

We have account options to suit any stage of your life regardless of where you are in your wealth journey. Take advantage of the range of options in Super Accelerator Plus today.

Learn more

 


The information in this article is general in nature. Any financial advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person. The article content is not intended to be a substitute for professional advice, so before you act on it you should determine its appropriateness having regard to your particular objectives, financial situation and needs, and seek any professional advice you require. 
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment. The relevant disclosure document should be obtained from Netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product.

This article contains some of the key considerations in winding up your SMSF and choosing a new account, however as this is a significant decision, it is recommended that you seek personal advice relevant to your individual circumstances and needs.

SMSFs provide features and advantages that may not be available in a normal super fund. It is important that you consider the benefits and the risks of both product types along with the personal needs and circumstances of you and the other SMSF members and seek appropriate advice before you make a decision.