Withdrawing your super to start a business is a great way to access capital for your venture.
Firstly, you need to determine your eligibility to access your super.
Secondly, you need to understand the risks of withdrawing your super to start a business.
While accessing super to start a business provides great hope, there are also risks associated.
Your ability to withdraw your super to start a business also depends on how much you need.
Different circumstances provide various options to accessing your super.
Can I Withdraw My Super to Start a Business?
If you have reached your superannuation preservation age, you will have at least some access to your super.
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This can allow you to withdraw your super to start a business.
If you have not met your superannuation preservation age, you cannot withdraw your super to start a business.
Your preservation age gives you the ability to access your super.
The amount of super you can withdraw after reaching your preservation age is determined by your work status.
Use this superannuation preservation age calculator to see your preservation age.
Can I Withdraw My Super to Start a Business Under 60?
If you are under age 60, but over your super preservation age, there are two ways you can access your super.
To have full access to your super, you need to be retired with no intention of returning to full-time or part time work.
Given that your intention is to use your super to start a business, it is not possible for you to satisfy this condition.
Starting a business constitutes work.
Therefore, your only option is to access your super via a non-commutable transition to retirement (TTR) income stream.
To do this, you use some or all of your accumulation account savings to start a TTR income stream.
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Contributions are unable to be made to an income stream account.
A transition to retirement income stream allows you to withdraw an income of between 4% and 10% of your account balance each financial year.
Think about your current account balance. Would 10% of this be adequate to help you start a business?
Keeping in mind that you can draw an additional 10% of your balance, recalculated each year.
Being under age 60, it is likely that some of your super withdrawal will be assessed for tax purposes.
Can I Withdraw My Super to Start a Business Over 60
The ability to have full access to your super is more flexible once you reach age 60.
This is because it opens up a new definition of retirement for condition of release purposes.
Specifically, if you have an employment arrangement come to an end after age 60, you will have full access to your super savings.
Given your intention is to withdraw your super to start a business, there is a fair chance that you will be meeting the condition of ceasing an employment arrangement.
For example, you might be retiring from your job as an employee to start a new business.
Or you might be closing down one business to start a new one.
Ceasing an employment arrangement after age 60 provides unrestricted access to your super savings.
Also, being over age 60, your super can be withdrawn tax free.
However, any subsequent contributions made to super, after ceasing the employment arrangement, will not be accessible in full until you meet a condition of release again.
(there may be tax payable if your super includes an untaxed element – usually relating to public sector super funds)
Can I Withdraw My Super to Start a Business Over 65
Attaining age 65 is a superannuation condition of release in itself.
This means, once you reach age 65, you have unrestricted access to your super, regardless of your employment status.
Therefore, you can withdraw as little or as much as you like.
Also, being over age 60, all withdrawals should be able to be made tax free.
In this instance, there is nothing stopping you from withdrawing your super to start a business.
Risks of Withdrawing Super to Start a Business
Withdrawing super to start a business may sound like a good idea, but you need to consider the risks.
The purpose of super is to allow you to save for your eventual retirement in a tax-effective manner.
All investment earnings within super are taxed at the concessional rate of up to 15%.
Once you retire and commence a retirement income stream, all earnings are received tax free.
So, super has some great tax advantages.
The investment menu within most superannuation funds allow you to choose from a range of options.
These range from ultra-conservative to highly aggressive.
But no matter which option you choose, they are generally well-diversified to mitigate the risk of losing your retirement savings.
If you have a self managed superannuation fund (SMSF) you might have chosen your own investments, or had an adviser assist you.
Maybe you even hold property within your SMSF.
Whatever the case, most investments within super will have less risk than that of starting a new business.
This is especially the case for people who have never run a business before.
Should I Withdraw My Super to Start a Business?
The things you need to consider before withdrawing your super to start a business includes the following:
Confidence of business profits: You should be confident that the business you are going to start will be profitable.
A good way to think about this is how much would your business earn, after costs and after paying you the same wage that you could earn as an employee.
There are also start-up costs too.
This can help you figure out the actual profitability.
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You don’t just want to earn a wage, because you could have achieved that without withdrawing your super and without the stress of running a business.
Plus, leaving your super untouched would allow it to continue earning in a tax-effective environment.
Comparative earnings: Okay, let’s say that you’re confident your business can turn a profit.
How would that profit, after all costs and taxes, compare to the investment return achieved within super?
For example, let’s say you withdrew $50,000 from super to start a business.
And, after all wages (including yours) and costs, the business made a profit of $3,000 for the year.
For arguments sake, we will assume the profits are taxed at 30%.
This means you would have a net annual profit of $2,100, representing a return of 4.2% on $50,000.
Had you left that $50,000 in super and it earned 6%, or $3,000, minus tax of 15%, or $450, you would have a net return of $2,550.
As you can see, the return in super, after tax, is 5.1% compared to the business return of 4.2%.
Keep in mind this is just a hypothetical example.
But you can apply the same principle with any sum of money that you intend on withdrawing from super to start a business.
Then, trial varying returns to see if there is a benefit of withdrawing super to start a business.
Also consider the extra stress and risks associated with running a business.
Ultimately though, the decision is yours.
We live this life once, so why not back yourself and have a crack?
Just keep in mind the consequences if it all goes belly-up.