Recontribution strategy definition
A recontribution strategy is where a Member withdraws money from their SMSF’s bank account either as a pension withdrawal or as a lump sum and then recontributes it back into the SMSF’s bank account as a Non-Concessional Contribution. This is a common estate planning strategy which aims to change the tax components from taxable to non-taxable. A non-taxable component is more favourable in a Binding Death Benefit Nomination when it is made to non-dependents.
The tax benefits of the recontribution strategy
By implementing a recontribution strategy, a Member can make changes to the underlying tax components of their superannuation balance. Member balances within an SMSF are made up of key tax components and when a Member makes a Non-Concessional Contribution, that amount forms part of the tax-free component.
It’s a better outcome to have a Member balance as a tax-free component when making a binding death benefit nomination to a non-dependent.
Dependents will not pay tax on death benefits received. Examples of dependents are:
- The Member’s children aged under 18
- The Member’s spouse or former spouse
- Individuals who were financially dependent on the Member
- Individuals who had an interdependency relationship with the Member e.g. both the Member and individual relied on each other financially and lived together
How the recontribution strategy works
To implement a recontribution strategy, a Member who meets a condition of release will withdraw money directly from the SMSF’s bank account as a pension payment or lump sum. This can then be added back to the Fund as a Non-Concessional Contribution. The Non-Concessional Contribution cap is $130,000 in one Financial year, however, by utilizing the Bring Forward Rule, a Member can make a $390,000 Non-Concessional Contribution in one Financial Year but will not be able to make a Non-Concessional Contribution for the next two Financial Years.
From 1 July 2026, a Member who has a total superannuation balance of more than $2.1 million or is aged 75 or over is not allowed to make further Non-Concessional Contributions to their superannuation.
For more information regarding how the recontribution strategy works, see the article here.
For more guidance on estate planning within an SMSF, please see here.
FAQs
Why should I implement a recontribution strategy?
A recontribution strategy can help you reduce the taxable component of your super by withdrawing and recontributing amounts as non-concessional contributions. This can help reduce tax payable by your non-dependant beneficiaries when your super is paid after your death.
What is the maximum recontribution I can make?
You can utilise bring forward non-concessional contributions when making your recontributions, meaning you can contribute $390,000 as a bring forward non-concessional contribution.
Is there any way to contribute more?
A recontribution strategy can be structured around the end of the Financial Year to maximise the amount recontributed. For example, you may be able to recontribute $130,000 before 30 June, and then a further $390,000 from 1 July, as the bring-forward rules cover the current year and the following two years.
Can I choose the components of my withdrawal?
No, you cannot cherry-pick the components of your withdrawal. If your balance is 60% taxable and 40% tax-free, any withdrawal will generally be made in the same proportion. For example, if you withdraw $100,000, $60,000 will come from the taxable component and $40,000 from the tax-free component.