The recontribution strategy is an estate planning technique used by some super members over 60 to change the tax composition of their super balance — reducing the taxable component and increasing the tax-free component. The purpose is typically to reduce the tax that non-tax-dependant beneficiaries (such as adult children) would pay on receiving the super as a death benefit.
This is an advanced strategy. It involves multiple steps, contribution caps, and individual circumstances that vary considerably. It is generally only relevant for those with significant super balances and estate planning objectives.
Why the Tax Composition of Super Matters for Estate Planning
Super death benefits are paid to your nominated beneficiaries. The tax treatment depends on:
Who receives the benefit:
- Tax-dependants (spouse, de facto partner, children under 18, those financially dependent on you) receive super death benefits tax-free
- Non-tax-dependants (adult children, siblings, other beneficiaries) pay tax on the taxable component of the death benefit
The composition of the benefit:
- Tax-free component: Passes to all beneficiaries completely tax-free — no tax regardless of who receives it
- Taxable component: Subject to a 15% tax (+ 2% Medicare levy = 17%) when paid to non-tax-dependants
The Implication
If your super is mostly taxable component (as it will be for most Australians whose super consists primarily of employer contributions and earnings), adult children who receive it as a death benefit pay up to 17% tax on it.
If it could be converted to tax-free component, there would be no tax on that portion for any beneficiary.
How the Recontribution Strategy Works
The Steps
- Withdraw from super as a lump sum — after age 60, this is completely tax-free regardless of component mix
- Wait for the money to clear to your bank account (usually 2–5 business days)
- Re-contribute the same amount (or a portion) as a non-concessional contribution — this re-enters super as the tax-free component, because you are contributing from after-tax money
- Net result: A portion of the taxable component has been converted to tax-free component, at zero tax cost to you (the withdrawal and recontribution are both tax-free)
Why It Works
When you contribute money to super from after-tax income (non-concessional contributions), it enters as the tax-free component. The act of withdrawing (tax-free after 60) and then recontributing converts what was a taxable component (high future death benefit tax risk) into a tax-free component (no death benefit tax for any beneficiary).
The Limits — Non-Concessional Contribution Cap
The recontribution strategy is constrained by the non-concessional contribution (NCC) cap:
| Rule | Detail |
|---|---|
| Annual NCC cap | $120,000 per year (FY2025–26) |
| Bring-forward rule (under 75) | Up to $360,000 over 3 years (subject to total super balance threshold) |
| Super balance threshold for NCC | Nil eligibility if super balance ≥ $1.9M at 30 June prior year |
Bring-Forward Amounts by Total Super Balance
| Total Super Balance at 30 June | Bring-Forward Available |
|---|---|
| Under $1.66 million | $360,000 (3-year bring-forward) |
| $1.66M–$1.78M | $240,000 (2-year bring-forward) |
| $1.78M–$1.9M | $120,000 (no bring-forward) |
| $1.9M or more | Nil — no NCCs available |
Who This Strategy Is Relevant For
The recontribution strategy is most relevant for:
- Those aged 60 or over (where withdrawals are tax-free)
- Those with a significant taxable component — particularly members who have had mostly employer and salary sacrifice contributions
- Those who have non-tax-dependant beneficiaries (adult children) who would otherwise pay 17% tax on the taxable component
- Those with super balances under $1.9M (so NCCs are still available)
- Those with headroom under the NCC cap or bring-forward provision
It is generally not relevant if:
- Your only beneficiaries are tax-dependants (spouse, young children) — they pay no tax on death benefits regardless of component
- Your super balance is at or above $1.9M — NCCs are no longer available
- Your taxable component is already low
Practical Example
Example: Helen is 64, has retired, and has a $600,000 super balance — 90% taxable component ($540,000), 10% tax-free ($60,000). She has two adult children who she intends to leave her super to.
Without recontribution strategy:
- If Helen dies, her adult children receive $600,000
- Tax-free component ($60,000): no tax
- Taxable component ($540,000): 17% × $540,000 = $91,800 in death benefit tax
- Net received by children: $508,200
With recontribution strategy (withdrawing $360,000 and recontributing under bring-forward):
- Helen withdraws $360,000 — $0 tax (she’s over 60)
- She recontributes $360,000 as NCCs (uses 3-year bring-forward) — these enter as tax-free component
- New super balance: $600,000 — now approximately 70% tax-free, 30% taxable
- Tax-free component: ~$420,000 (no death benefit tax)
- Taxable component: ~$180,000 × 17% = $30,600
- Net received by children: ~$569,400
Potential saving: ~$61,200 in death benefit tax
This is an illustrative example. Actual amounts depend on individual component splits, caps available, and other factors. Past tax rules may change.
Practical Considerations
- Timing: The withdrawal and recontribution should be done in the same financial year if possible (though there is no strict rule requiring this). Ensure contributions are received by the fund before 30 June.
- Contribution limits: Track your NCC usage carefully — excess NCCs attract penalty tax.
- Transfer Balance Cap: Recontributed amounts go into accumulation — you can later move them into pension phase (within your TBC), further growing the tax-free pool.
- Fund processing times: Allow 5–10 business days for the withdrawal to clear and the recontribution to be processed.
- Will and death benefit nominations: Ensure your binding death benefit nomination is updated and reflects your estate planning intentions.
Frequently Asked Questions
Can I do the recontribution strategy multiple times? You can do it annually (up to the $120,000 NCC cap) or use the bring-forward rule for a larger one-off amount. Once the bring-forward is triggered, you cannot use it again until the 3-year period has elapsed.
Is there any tax risk in the strategy itself? The withdrawal after age 60 is tax-free — there is no tax trigger. The recontribution is a standard NCC. As long as you stay within the NCC caps and your balance is under $1.9M, there is no additional tax on the strategy itself. The benefit is entirely on the estate planning side (less death benefit tax for non-tax-dependant beneficiaries).
Does this affect my Age Pension? The withdrawal and recontribution don’t change your total super balance — so the assets test impact is the same. There may be a brief period where the cash is in your bank account (between withdrawal and recontribution) — this counts as an assessable financial asset during that time.
I’m 72 — can I still do this? Yes — the bring-forward rule applies to those under age 75 at the start of the financial year. At 72, you can still trigger the bring-forward. However, if your super balance is above $1.9M, NCCs are no longer available. Check your eligibility carefully.
See also: Super Strategies. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.