An inheritance can be a substantial sum of money and receiving one can bring a mix of emotions. There are pros and cons to putting an inheritance into your super, or leaving an inheritance to others using your own super.
Can you put an inheritance into your super?
If you decide you want to put money from an inheritance into your super, you usually can, by making a voluntary contributionor a spouse contribution. There are limits on how much you can contribute to your super per year, so make sure the amount you contribute to your super is within these limits.
Pros and cons of putting an inheritance into your super
Pro
- Contributing money to your super from an inheritance can give you more money to spend in retirement.
- You can easily invest in a range of different asset classeswith your super.
- Investment earnings in your super are taxed at 15% - investing outside of super may be taxed more, depending on the circ*mstances.
- Investing in super means simple, transparent fees- investing directly in shares or real estate involves stamp duty, brokerage fees, and more.
- For low income earners, the government provides incentives such as a co-contribution.
- You usually couldn't use the money until you reach a certain age or retire.
- The amount you can contribute before you'd pay extra tax is limited by legislation.
- If you already have a total super balance of more than $1.9m, you would pay extra tax on the contribution.
Case study: Alex contributes an inheritance into super1
Alex is 62 years old when their mother unfortunately passes away. As Alex has already paid off a mortgage and plans to retire in the next few years, a financial adviser recommends they contribute part of the inheritance to their super. That way, they can give any monetary gifts they want to before they retire, and any Age Pension payments they might receive wouldn't be affected by giving those gifts.
Alex's inheritance from their mother was $400,000, so they decide to contribute $200,000 to their super, give $100,000 as a gift to the kids to help them buy their first home/s, and save the remaining $100,000 for home renovations.
Alex puts the $200,000 into super as a non-concessional (after-tax) contribution, using the bring-forward rules to make more than 1 year's worth of contributions in one year (the usual limit is $120,000 per year).
What happens if you inherit from super
There are a few ways you can be paid a super death benefit if you are eligible:
Start an income stream
With a death benefit income stream, you can receive regular payments to your bank account.
Take a lump sum
You can receive the full amount at once as a payment to your bank account.
Lump sum and income stream
Another option is to take out a lump sum, then use the rest of the money to start an income stream.
Each of these options has different benefits and disadvantages, and the amount will be taxed differently depending on which you choose. A financial adviser can help you decide which option might be best for your circ*mstances.
Tax considerations
Do you pay tax on inherited money if you put it into your super?
If you want to put money, such as an inheritance, into your super, there is no tax payable when you contribute the money because it's a voluntary after-tax contribution(non-concessional contribution). If you're eligible toclaim a tax deduction on that contribution, it becomes a concessional contribution and is charged 15% tax.
Do you pay tax when you receive a super inheritance?
When you receive a death benefit from someone's super, the tax you pay depends on factors including your relationship to the person who died, your age, and the age of the person who died.
| Type of benefit | Age of deceased | Age of beneficiary | Tax on taxed part | Tax on untaxed part |
|---|---|---|---|---|
| Super lump sum paid to dependant | Any age | Any age | Tax-free | Tax-free |
| Super lump sum paid to non-dependant | Any age | Any age | Taxed at max 15% (plus Medicare levy) | Taxed at max 30% (plus Medicare levy) |
| Super income stream paid to dependant | 60 years or older | Any age | Tax-free | Taxed at marginal rates with 10% tax offset |
| Any age | 60 years or older | Tax-free | Taxed at marginal rates with 10% tax offset | |
| Under 60 years | Under 60 years | Taxed at marginal rates with 15% tax offset | Taxed at marginal rates with no tax offset |
If you're living outside of Australia when you inherit money, you'll need to check the laws about paying estate tax in your country. For more information, please read our Death Benefit Claim Guide (pdf)or contact us.
Passing on an inheritance with your super
To make sure your super is distributed according to your wishes when you die, you can tell us who you want to receive your super (your beneficiaries). Use your pre-filled form in Member Onlineand have it signed and witnessed before sending it to us, to make a binding death benefit nomination.
If you have an Income account, you can also make a reversionary nomination in Member Online, so that your income payments will go to your beneficiary after you die. Find out more about what happens to your super when you die.
Connect with a financial adviser
Dealing with an inheritance can be a big decision, so you may want to seek professional financial advice.
Find out more
1. This case study is provided for illustrative and educational purposes only, and the members shown are not real. Additionally, figures may be rounded for ease of understanding. Members should seek advice from a qualified licensed professional regarding their own circ*mstances.
