Recontribution: turning taxable super into tax-free

A recontribution strategy is simple in outline: once you're over 60 and can access your super, you withdraw a lump sum (tax-free), then put it straight back in as an after-tax (non-concessional) contribution. Your balance ends up the same — but the tax character of your super changes.

Why it works: the two components of super

Every super balance is made of two components, and they're taxed differently when someone else inherits it:

Component	Where it comes from	Tax on death to a non-dependant
Taxable	Employer (SG) and salary-sacrifice contributions, plus all fund earnings	Taxed at about 15% (+2% Medicare)
Tax-free	The after-tax (non-concessional) contributions you've made	Nothing — passes tax-free

For most people super is mostly taxable — a whole career of pre-tax contributions and decades of earnings. That's fine while you're alive (from 60 it's all tax-free to you). It only bites when your super passes to a non-dependant — typically your adult children, who then pay tax on the taxable component. A spouse or a financially-dependent child pays nothing.

How the swap works

Withdraw a lump sum. From age 60 (once you've met a condition of release) this is tax-free, and it comes out of the taxable and tax-free components proportionally.
Re-contribute the same amount as a non-concessional (after-tax) contribution — it goes back in as 100% tax-free component.
Net effect: your balance is unchanged, but a slice of your taxable component has become tax-free.

Converted this swap = withdrawal × (taxable component ÷ total balance)

Because each swap only converts the taxable share of what you take out, you repeat it over a few years (each within the contribution cap) to convert most of your balance — a little less converts each time as the tax-free share grows.

Where the money lands: pension, accumulation and the cap

There's a wrinkle worth understanding, because it's where the strategy can trip up. A non-concessional contribution can't go into an existing account-based pension — it has to land in an accumulation account. And in accumulation, earnings are taxed at 15%, not tax-free as they are in pension phase.

So a recontribution actually moves money out of the tax-free pension environment and into accumulation. To get it back to earning tax-free, you start a fresh account-based pension with it — which is why the strategy is usually run as a commute → recontribute → restart the pension refresh, resetting the tax-free/taxable split across your whole balance in one go.

The limit on all this is the Transfer Balance Cap — the lifetime ceiling (around $2 million) on how much you can hold in a tax-free pension. You can only move the money back into pension phase if you have cap room. If you're already at the cap, the recontributed amount is stranded in accumulation and its earnings are taxed at 15% — a drag that can eat into, or even outweigh, the death-tax saving.

RetireWiz models the refresh: it routes the recontributed amount back into your pension pool up to your remaining Transfer Balance Cap, so for a retiree under the cap the money stays in retirement phase and keeps earning tax-free. Only an amount that would push you over the cap is left in accumulation.

A worked example

Meg, 66 and retired, has $500,000 in super — all of it the taxable component. If she died today and left it to her adult son, he'd pay about 17% × $500,000 ≈ $85,000 in death-benefit tax.

She withdraws $130,000 (tax-free — she's over 60) and re-contributes it as a non-concessional contribution. Her balance is back to $500,000, but now $130,000 is tax-free and $370,000 is taxable.

Her son's potential tax drops to about 17% × $370,000 ≈ $62,900 — roughly $22,000 less, from one swap. Repeating it over a few years converts most of the balance.

What it's used for

Cutting the death-benefit tax for non-dependant beneficiaries (adult children) — the main use.
Evening up super between spouses — withdraw from one and contribute to the other, to balance two accounts (useful for making the most of two tax-free pension caps).
Sheltering super from the Age Pension assets test — moving money into a younger spouse's accumulation account, which isn't assessed until they reach pension age.

The rules and the catch

You must be able to access your super (a condition of release — usually age 60 and retired, or 65 regardless).
The re-contribution is a non-concessional contribution, so it's capped — around $130,000 a year, or roughly three years' worth at once under the bring-forward rule (see contribution caps).
You must be under 75, and your total super balance must be under the limit to make non-concessional contributions.
It only helps if you have a taxable component and a non-dependant beneficiary — for a spouse it makes no difference to the death-benefit tax.

The mechanics — the caps, the bring-forward trigger, and timing — are technical, and a mistimed contribution can breach a cap. This is general information, not advice; get personal advice before acting.

In the planner

RetireWiz tracks your taxable and tax-free components through the whole projection and shows, on your dashboard, the tax your beneficiaries would pay if you died at your planning age. The Recontribute lever on the What-If board lets you model the strategy and see the effect.