In this guide
Now that the usual minimum age to access super has reached 60, it’s uncommon to make a withdrawal prior to that milestone. However, you may need early access to your super because of hardship, injury or illness, you could be receiving a benefit after the death of someone close to you, or perhaps you have some non-preserved money in your account.
Whatever the situation, it’s important to understand the tax implications.
So, just what are the taxes that could apply if you withdraw super before you turn 60?
Want your super benefit? Then get ready to meet a condition of release
As your super savings are designed to be used in your retirement, there are strict rules governing your ability to withdraw them before you reach your preservation age, which is 60 for anyone currently aged 60 or below.
Preserved super can be accessed under age 60 in limited circumstances such as if you are permanently disabled or suffering severe financial hardship. These circumstances are called conditions of release.
If you made voluntary contributions to super before 1 July 1999, you may have some non-preserved super that can be withdrawn at any time. If you have any non-preserved money, it will be shown on your annual statement and online balance summary.
Withdrawing your super
Most conditions you can meet to access super before age 60 result in a lump sum payment (e.g. financial hardship, compassionate grounds, terminal illness and withdrawing non-preserved super).
However, if you are permanently incapacitated or receiving a benefit as the result of another person’s death, you can often choose to withdraw from your super as an income stream, lump sum or a combination of the two:
- Income stream (super pension or annuity): If you decide to take a super income stream, you will receive a series of regular payments from your super fund. These must be paid at least annually and must meet the minimum annual payment rules.
- Lump sum: This is a single payment that withdraws some or all of your super. If you take a lump sum the money is no longer within the super system and if you invest it, any return on your investment will be taxed like normal income, not super. This means the concessional tax rate of 15% on your super account’s earnings will no longer apply. Instead, the earnings will be taxed at your marginal tax rate, which can be as high as 45% (plus the Medicare levy).
When choosing whether to take a lump sum or income stream from your super account, it’s a good idea to get advice from an independent financial adviser or tax professional.
Tax and super are complicated and taking a lump sum may not be the best strategy for you, as there can be tax advantages with an income stream and withdrawing money from the super system can affect Centrelink benefits. Centrelink aspects are particularly important to consider if you are permanently incapacitated and may be eligible for a disability support pension.
Accessing super before age 60: Terms you need to know
When you withdraw your super benefits before age 60, you need to learn some new jargon. Although the terms may sound off-putting, each factor helps determine how much – if any – tax you will pay.
To work out how your super benefit will be taxed, you need to know:
- Whether you plan to take a lump sum or an income stream
- Your tax-free and taxable components
- The untaxed plan cap (if you are a member of an untaxed fund).
Tax free or taxable? Understanding the different components
Your super account contains both tax-free and taxable components.
- The tax-free component mainly consists of your non-concessional (after-tax) contributions into your super account, as these amounts come from income on which you have already paid tax. (If you were a member of a super fund before July 2007, you may also have other tax-free amounts in your super account.)
- The taxable component typically comes from your concessional (before-tax) contributions. These include employer contributions (such as Super Guarantee contributions), salary-sacrifice contributions and any super contributions for which you claimed a tax deduction. Investment earnings in your super account also form part of the taxable component.
This taxable component is further divided into taxed and untaxed elements:
- In most cases, your super fund will have paid tax on contributions and investment earnings. This part of your super benefit is called the taxed element of your taxable component (taxable component – taxed element).
- If your super fund has not paid tax on any part of your taxable component, those amounts are called the untaxed element of your taxable component (taxable component – untaxed element). The untaxed element only occurs in certain public sector funds such as Triple S in South Australia and West State Super in WA.
Any withdrawals from your super account must be made in the same proportions as your tax-free and taxable components.
You cannot choose to withdraw only from the tax-free component. This requirement is known as the proportioning rule.
Your annual statement from your super fund will normally indicate both the tax-free and taxable components of your super. If not, contact your fund and they will be able to work it out for you.
What is the untaxed plan cap?
The untaxed plan cap amount is the maximum amount of untaxed elements in a super benefit that can take advantage of the concessional tax rates applying to super withdrawals. Any amount over the untaxed plan cap is taxed at the top marginal tax rate.
If you receive a lump sum from several super funds, the untaxed plan cap applies to the amount from each super fund. In 2024–25 the untaxed plan cap is $1.780 million.
What are the tax implications of withdrawing at different ages?
If you withdraw some of your super benefit before you reach 60, you will generally pay tax on your super savings (there are exceptions if you have a terminal illness, or the amount is a death benefit).
On the other hand, if you wait until you are age 60, your withdrawal will be tax free if it is paid from a taxed fund and will attract lower tax rates if it is paid from an untaxed fund.
No tax is payable on the tax-free component of your super, regardless of your age when you make a withdrawal.
When it comes to the taxable components of your payment, they will be taxed as follows:
Tax rates
The tables below show the tax rates that apply to different types of superannuation payments when they are made to individuals below 60. A Medicare levy of 2% applies in addition to all rates listed, except where payments are tax free.
Note that all the rates shown are maximum rates. If a person’s marginal tax rate is lower, the ATO will refund the difference between the rate withheld by the super fund and the marginal rate.
Tax rates for taxable component (taxed element)
| Type of payment | Conditions | Tax treatment |
|---|---|---|
| Lump sum | Standard | 20% |
| Terminal illness | Tax free | |
| Income stream | Standard | Marginal rate |
| Disability income stream | Marginal rate with 15% offset | |
| Death benefit lump sum | Paid to tax dependant | Tax free |
| Paid to non-tax dependant | 15% | |
| Death benefit income stream | Deceased was 60 or more | Tax free |
| Deceased was under 60 | Marginal rate with a 15% offset | |
| Death benefit income stream that is a capped defined benefit income stream | Deceased was 60 or more | Income from tax-free and taxed elements up to the defined benefit income cap ($118,750 per year in the 2024–25 year) is tax free. 50% of the income from these components above the cap is assessed at marginal rates. |
| Deceased was below age 60 | Marginal rate with 15% offset |
Tax rates for taxable component (untaxed element)
| Type of payment | Conditions | Tax treatment |
|---|---|---|
| Lump sum | Standard | 30% up to untaxed plan cap 45% above the untaxed plan cap |
| Terminal illness | Tax free | |
| Income stream | Standard (including disability super benefits) | Marginal rate |
| Death benefit lump sum | Paid to tax dependant | Tax free |
| Paid to non-tax dependant | 30% | |
| Death benefit income stream | Deceased was 60 or more | Marginal rates less 10% offset* |
| Deceased was below age 60 | Marginal rate | |
| Death benefit income stream that is a capped defined benefit income stream | Deceased was 60 or more | Marginal rates less 10% offset* |
| Deceased was below age 60 | Marginal rate |
*Maximum tax offset is $11,875 for the 2024–25 income year. This has the effect that income from untaxed elements above the defined benefit income cap of $118,750 does not attract the offset.
Source: ATO website.
Tax time: Filling in your tax return
When tax time rolls around, you need to include details of your benefit payment in your annual tax return.
You will receive a PAYG payment summary from your super fund showing how much of the super benefit you received during the year is taxable and how much is tax free. It will also note any tax withheld from your super benefit and any tax offsets that were applied.
If you received a lump sum, you need to include the taxable component in the ‘superannuation lump sum payments’ section.
If you received an income stream, follow the instructions in the section for ‘Australian annuities and superannuation income streams’ to include the details from your payment summary. Any tax offset associated with your income stream should be declared separately in the offset section of your tax return.
