Planning for retirement is a crucial aspect of financial well-being, and understanding the regulations and limits surrounding retirement accounts is essential.
In Australia, one limitation is the general Transfer Balance Cap (TBC), which determines the maximum amount of money that can be transferred into a tax-free retirement account from other sources.
However, one of the positives of higher inflation is that thresholds, like those in place for TBC, are indexed in line with inflation. So, come 1 July 2023, the TBC is set to increase from $1.7 million to $1.9 million.
What is a general transfer balance cap?
A general transfer balance cap is the maximum amount of money that can be transferred into a tax-free retirement account from other sources. This includes funds from superannuation accounts, rollovers from foreign funds and other approved sources.
The TBC impacts both the total superannuation balance for the non concessional contribution cap and the transfer balance cap for how much you can transfer to a tax free pension.
Why is the Transfer Balance Cap changing?
The TBC indexation serves as a mechanism to ensure that the cap keeps up with inflation and reflects the changing economic conditions over time.
By adjusting the cap, the government aims to strike a balance between providing individuals with sufficient flexibility in managing their retirement savings while maintaining the sustainability of the superannuation system.
What does this mean financially in 2023?
2023 can’t be all bad! Due to high inflation, certain thresholds will see promising increases. This is also true for the TBC, which will be indexed from $1.7 million to $1.9 million this year.
What does this mean for retirement planning?
The increase in the TBC to $1.9 million presents new opportunities for retirement planning.
Individuals who were previously unable to make additional contributions due to reaching their cap can now consider making contributions to further grow their retirement savings from 1 July 2023.
What does this mean for tax planning?
With the higher TBC, it becomes crucial to assess the most tax-efficient strategies for managing retirement savings.
For individuals who have more money in superannuation than the transfer balance cap, it may be wise to evaluate whether it is more advantageous to keep funds in excess of the transfer balance cap in the superannuation environment or withdraw and invest outside of the superannuation system.
Consulting with a financial advisor or tax professional can help navigate the complexities of tax planning and optimise the use of available options.
Who does the tbc 2023 increase benefit?
The increase in the TBC will benefit two groups of people:
- Firstly, those who were previously restricted from making non-concessional contributions due to reaching their total superannuation balance cap will now have more flexibility.
- Secondly, individuals who haven’t fully utilised their TBC will be able to take advantage of the increased limit by potentially recommencing a pension and adding more funds to the tax free pension
For people who have partially used their TBC, the indexation will apply only to the portion of the TBC which hasn’t been used (this looks at the highest TBC used previously). So, someone who has fully utilised their TBC can’t transfer funds back to accumulation to get some indexation.
This means couples should work towards having a more even superannuation balance and consideration should be given to what is the best thing to do with amounts over $1.9M in tax free pensions (one strategy on the table is to consider leaving it in accumulation phase and pay tax at 15% or even withdraw and invest outside of superannuation).
Navigate the general transfer balance cap changes with Precision Wealth Management
The indexation of the general transfer balance cap in 2023 brings positive news for individuals looking to maximise their retirement savings. The increase to $1.9 million provides opportunities for those who were previously limited by the cap, allowing them to make additional non-concessional contributions.
However, careful consideration is needed to determine the best approach for managing retirement savings and optimising tax planning strategies. Consulting with professionals in the field can ensure that individuals make informed decisions based on their specific circumstances and goals. Contact Precision Wealth Management for guidance on securing your nest egg.
DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.
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