Your Kids Will Pay 17% Tax on Your Super. How the 'Recontribution Strategy' Wipes It Out

⚰️ The Hidden "Death Tax" in Your Super

John works hard all his life and builds a Superannuation balance of $500,000. He passes away, leaving it to his 35-year-old son, Mike.

Mike expects to receive $500,000. Instead, the Super fund sends him a payment for approx. $415,000.

Where did the $85,000 go? The ATO took it.
While Super is tax-free for you (after age 60) and your spouse, it is NOT tax-free for adult children. They must pay 17% tax (15% tax + 2% Medicare Levy) on the "Taxable Component." But John could have saved this money with one simple banking transaction before he died.

Most Australians' Super balances are made up of "Concessional Contributions" (Employer SG, Salary Sacrifice). The ATO calls this the Taxable Component.
When an adult child inherits this, it is heavily taxed.

However, "Non-Concessional Contributions" (After-tax money you put in) form the Tax-Free Component. This is never taxed, no matter who inherits it.
The goal is to convert your money from "Taxable" to "Tax-Free." 

Your Kids Will Pay 17% Tax on Your Super.

"Withdraw and Re-contribute"

This strategy is best executed between age 60 and 75.

🔄 The Washing Machine Method

1. Step 1: Withdraw.
   Because you are over 60 and retired (meeting a condition of release), you can withdraw a lump sum (e.g., $360,000) from your Super tax-free. The money hits your personal bank account.
2. Step 2: Re-contribute.
   A few days later, you deposit that $360,000 back into your Super fund as a "Non-Concessional Contribution."
3. Step 3: The Transformation.
   When the money re-enters the fund, the ATO classifies it as "Tax-Free Component." You have successfully "washed" the tax liability away.

"Bring Forward Rule"

You cannot just dump millions in. You must respect the 2025/26 caps.

• Annual Cap: The Non-Concessional Cap is currently $120,000 per year.
• Bring Forward Rule: If you are under age 75, you can trigger the "Bring Forward" arrangement to contribute 3 years' worth ($360,000) in a single year.
• Total Super Balance Cap: You cannot make non-concessional contributions if your total super balance was over $1.9 Million on June 30th of the previous financial year.

Why Do It?

1. Estate Planning: You save your kids 17% tax instantly. On a $360,000 re-contribution, that is a $61,200 gift to them, completely cost-free to you.
2. Equality: If you have a spouse, you can use this to even out balances (withdraw from Husband, contribute to Wife) to maximize the Transfer Balance Cap space.

🛡️ Chief Editor’s Verdict

It costs nothing but a bank transfer fee, yet saves thousands.

1. Don't Miss the Cut-off: You must do this before you die. Once you pass away, the tax status is locked. This is why having an Enduring Power of Attorney is critical—if you lose capacity, your attorney can potentially execute this for you.
2. Check TBC: Ensure you are under the Total Super Balance cap before re-contributing, or you will face excess penalties.

Wash your Super clean before you leave it behind.

⚖️ Legal Disclaimer & General Advice Warning:
The information provided in this article is for general informational purposes only and does not constitute professional financial or tax advice. Superannuation laws, including contribution caps and tax rates, are subject to change by the Australian Taxation Office (ATO). The "Recontribution Strategy" involves strict eligibility criteria regarding age and account balances. You should consider your own personal circumstances and consult with a qualified financial adviser or tax professional before making any financial decisions. This content is based on Australian laws and market data as of January 2026.