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Active Retirees : Active Retirees Jun-Jul
36 | www.probussouthpacific.org FINANCE Home economics Equity in the family home is often a major source of funds for retirement, but using it without losing it to banks, taxes and fees can be complicated. Ben Power explores the four main ways to access home equity. A retiree’s biggest asset is often their home, and the actual wealth tied up in a home – or equity – is the home’s market value less any debt. There are many ways to access equity, but four of the main ways are selling, borrowing, using family, and renting. Each approach has its pros and cons, as well as possible impacts on pension payments and superannuation. 1Selling The obvious way to access home equity is to sell. If the home is your ‘principal place of residence’, you don’t pay capital gains tax on the sale proceeds, but what to do with those proceeds can be complicated. If you put the cash into an existing superannuation account or set up a self- managed super fund (SMSF), you need to be aware of the restrictions on how much you can contribute without tax penalties. If you’re under 65 you can make voluntary contributions in after -tax dollars of up to $150,000 a year, or $450,000 averaged over three years. If you’re over 65 and under 75, you have to be working at least 40 hours in a 30- day period to make contributions. According to Ken Raiss, a partner at accounting firm Chan & Naylor, it might be more cost effective not to put money into super if you don’t have much. If your actual income is low enough you won’t pay tax anyway, he explains. Therefore, there is no reason to set up a potentially costly SMSF. Retirees also need to be careful about how selling a home impacts any Centrelink payments, according to Jason Cunningham, head of accountancy firm The Practice. “If you sold the house and put all that money into cash, it may impact your ability to get the old age pension,” he explains.
Active Retirees Aug-Sept