For Tony, super adds up as ... The best way to go

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Q My wife and I are both working part-time with a combined income of $80,000. My wife has super valued at $110,000 and we have recently set up an SMSF valued at $390,000. We have no debt, savings in the bank of $300,000 and our house would be valued at $500,000.

Our challenge is to invest this money with a view to having a tax-free income at age 60. We are not sure whether to invest the money in the bank, in some property or contribute further to the SMSF. We also wonder whether we should borrow against the house to be tax effective.

A What makes this question a little bit of a challenge is I’m not sure how old you are and therefore how far away you are from retirement. The part-time work and a strong financial position is a pretty solid hint that you, like me, are not spring chickens.

With $500,000 in combined super and a view towards retirement, I’m going to guess you’re in your late 40s or early 50s. In your current position, I really don’t think it’s necessary to borrow against your home for tax purposes or otherwise. You’ve obviously worked hard to pay off the family home, and entering retirement without debt is quite an achievement that offers you a sense of financial security. It sounds as though your SMSF balance is large enough for it to make financial sense, so long as you are comfortable with the added workload and responsibility. Including your wife’s super in the SMSF would help reduce the overall fees you are paying and is an option worth considering.

As you approach retirement, moving some of your savings into super could be a smart way of reducing your tax. Tax within super is 15% and there is a good chance you’re currently paying more than that on the interest earned on your savings.

You can currently put up to $150,000 a year each into super, so your $300,000 could go there. In an SMSF you could still hold term deposits if you wished, though I prefer more diversification, and you would pay a maximum 15% tax. At age 60, under the current rules, you could retire, convert the fund to a pension fund and pay no tax on earnings in the fund or on withdrawals.

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