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Super Components & the Recontribution Strategy
How to reduce death benefit tax for your beneficiaries.
Here's something that surprises many retirees: even though your super pension pays you tax-free income after age 60, your beneficiaries might still face a hefty tax bill when you die — potentially 15-17% on a large portion of your balance.
The culprit? Your super's taxable component. And the solution? A clever strategy known as the recontribution strategy (or "withdrawal and recontribution") that can convert taxable super into tax-free super, potentially saving your beneficiaries tens of thousands of dollars.
🔎 You Might Know This Strategy As:
First: Understanding Super Components
Every dollar in your super belongs to one of two components. This isn't just accounting — it directly affects how much tax your beneficiaries pay when you die.
🟢 Tax-Free Component
Money already taxed before entering super (after-tax contributions, co-contributions, pre-1983 amounts)
Death benefit: Always tax-free
🟠 Taxable Component
Money not yet fully taxed (employer contributions, salary sacrifice, investment earnings)
Death benefit: May be taxed 15-17%
🔑 The Critical Point: Components Are Locked In
When you convert your accumulation account to a pension, the component proportions are frozen. If your account is 70% taxable component when you start the pension, it stays 70% taxable — even though:
- All future earnings inside the pension are tax-free to you
- Your pension payments are tax-free to you
- Your balance might double from investment growth
The proportions never change once in pension phase. This is why estate planning requires looking at components, not just total balance.
Why Components Matter: Death Benefit Tax
When you die, who receives your super determines the tax treatment:
| Beneficiary Type | Tax-Free Component | Taxable Component |
|---|---|---|
| Tax dependant Spouse, child under 18, financial dependant, person in interdependency relationship | Tax-free | Tax-free |
| Non-tax dependant Adult children, siblings, friends, estate (if flows to non-dependants) | Tax-free | 15% + 2% Medicare levy = 17% |
⚠️ Adult Children Are NOT Tax Dependants
This catches many people off guard. Your independent adult children — even if they're your primary beneficiaries — are classified as non-tax dependants for super purposes. They'll pay up to 17% tax on the taxable component of any death benefit they receive from your super.
Example: The Tax Bill Your Kids Might Face
Margaret dies with a $600,000 super pension. Her component split is:
- Tax-free component: $180,000 (30%)
- Taxable component: $420,000 (70%)
Margaret's only beneficiary is her adult daughter Sarah (a non-tax dependant).
Tax on death benefit:
- Tax-free component: $180,000 × 0% = $0
- Taxable component: $420,000 × 17% = $71,400
Sarah receives $528,600 instead of $600,000. The ATO takes $71,400.
The Recontribution Strategy Explained
💡 The Core Idea
Withdraw money from your super (which comes out proportionally from both components) and recontribute it as a non-concessional contribution (which is 100% tax-free component).
Each cycle converts some taxable component into tax-free component, reducing the potential death benefit tax for non-dependant beneficiaries.
Basic Process
Withdraw a Lump Sum
Take a lump sum from your pension. The withdrawal comes out in the same proportion as your components — e.g., if you're 70% taxable, 70% of the withdrawal is taxable component.
Recontribute as Non-Concessional
Contribute the same amount back into super as a non-concessional contribution. Because it's after-tax money going in, the entire contribution is classified as 100% tax-free component.
Convert Back to Pension
If needed, convert the accumulation balance back into pension phase. Your new pension will have a higher tax-free proportion.
Repeat Until Complete
Subject to contribution caps and eligibility, repeat this process to progressively convert more taxable component to tax-free. The goal is 100% tax-free component (or as close as possible) before turning 75.
💡 Many Funds Have Streamlined This
Good news: many super funds now offer a seamless recontribution process. Instead of withdrawing cash to your bank account and then making a separate contribution, you simply complete a couple of application forms and the fund handles everything internally. Ask your fund about their "withdrawal and recontribution" or "component optimisation" process.
The Optimal Strategy: Two Separate Accounts
Here's what separates a basic recontribution from an optimal one: instead of mixing your recontributed money back into your original account, you put it into a separate, new account that is 100% tax-free component.
🎯 Why Two Accounts?
With two accounts, you can make different drawdown decisions for each:
- Original account (high taxable): Draw down aggressively — take any lump sums from here, draw higher pension amounts. You want to use up the taxable component.
- New account (100% tax-free): Keep pension payments to the minimum drawdown only. Preserve this account for as long as possible since every dollar here passes tax-free to your beneficiaries.
Example: The Two-Account Approach
Margaret has $600,000 in a pension that's 70% taxable. Over three years, she does the following:
Year 1: Withdraws $120,000 from existing account → Recontributes to NEW Account B
Year 2: Withdraws $120,000 from existing account → Adds to Account B
Year 3: Withdraws $120,000 from existing account → Adds to Account B
After 3 years, Margaret has:
- Account A (Original): $240,000 — still 70% taxable ($168,000 taxable / $72,000 tax-free)
- Account B (New): $360,000 — 100% tax-free
Going forward:
- Any lump sums Margaret needs? Take from Account A (uses up taxable component faster)
- Account B pension? Minimum drawdown only (preserves the tax-free money)
- If Margaret needs to spend down for Centrelink purposes? Spend Account A first
If Margaret dies with $500,000 total:
- Best case: Account A is depleted, Account B has $500,000 → $0 death benefit tax
- Worst case: If she'd mixed it all together, she'd have ~$85,000 taxable → $14,450 tax
💡 The Goal: 100% Tax-Free Before Age 75
Since you can't make non-concessional contributions after age 75, the window for this strategy is limited. Plan ahead — if you have a large taxable component, you may need several years of maximum contributions to fully convert it. Starting at age 70 with a bring-forward, then per year until 75, gives you substantial conversion capacity.
Over 75? The Spouse Strategy
If you're already over 75, you can't make non-concessional contributions to your own super. But there's still an option if your spouse is under 75:
👫 Spouse Recontribution Strategy
- You withdraw from your super (any age can withdraw once you have a condition of release)
- You contribute that money to your spouse's super as a spouse contribution (counts as NCC for them)
- Your spouse's super grows with 100% tax-free component
- On your spouse's death, their super passes to beneficiaries (potentially you, then children)
This doesn't fix your taxable component, but it shifts wealth to your spouse's account where it can be tax-free. It works best when:
- Your spouse is significantly younger (under 75)
- Your spouse has a lower super balance (TSB under $1.9m)
- You expect your spouse to outlive you
- Your spouse's beneficiaries will be non-tax dependants (adult children)
⚠️ Spouse Contribution Limits Apply
Spouse contributions count toward your spouse's NCC cap (/year or up to with bring-forward). Your spouse must have TSB under and be under 75.
Example: Basic Recontribution Mechanics
Using Margaret's situation from before ($600,000 pension, 70% taxable):
Before strategy:
- Tax-free: $180,000 (30%)
- Taxable: $420,000 (70%)
- Potential death benefit tax for adult child: $71,400
Margaret withdraws $120,000:
- $36,000 comes from tax-free (30%)
- $84,000 comes from taxable (70%)
She recontributes $120,000 as NCC (to a new account):
- Entire $120,000 is now 100% tax-free component
After one cycle:
- Account A: $480,000 (still 70% taxable = $336,000 taxable)
- Account B: $120,000 (100% tax-free)
- Potential death benefit tax: $336,000 × 17% = $57,120
Tax saved so far: $14,280 — and Margaret can repeat this each year until she turns 75 or achieves 100% tax-free.
Eligibility Requirements
The recontribution strategy isn't available to everyone. You need to satisfy several conditions:
| Requirement | Details |
|---|---|
| Age | Under 75 to make non-concessional contributions (no work test required for NCCs) |
| Total Super Balance | Must be under at 30 June prior year to make any NCC |
| Contribution caps | NCC cap is /year (or up to using bring-forward if eligible) |
| Transfer Balance Cap | Must have TBC space available if converting back to pension phase |
| Condition of release | Must be able to access your super to make the withdrawal |
🚫 The Strategy Won't Work For Your Own Super If:
- You're 75 or older (can't make NCC to your own super — but consider the spouse strategy above)
- Your Total Super Balance is or more (NCC blocked)
- You've already used your bring-forward and want to contribute more than this year
- You don't have Transfer Balance Cap space to restart a pension
Important Considerations
Transfer Balance Cap Implications
If you're running this strategy while in pension phase, you'll need to consider the TBC:
- Commuting to accumulation: Creates a TBC debit (frees up cap space)
- Restarting pension: Creates a TBC credit (uses cap space)
- If your personal TBC is already fully used, you may need to leave funds in accumulation
💡 Accumulation Can Still Work
Even if you can't restart a pension, leaving funds in accumulation after the recontribution still achieves the goal — you've converted taxable to tax-free component. The death benefit tax saving applies whether the benefit is paid from accumulation or pension phase.
Timing Considerations
- Time out of market: If using the traditional method (withdrawing to bank, then recontributing), your money may be out of the market briefly. However, many funds now offer internal processes that minimise this gap.
- End of financial year: Be careful around 30 June — ensure contributions count in the intended year
- TSB measurement: Your Total Super Balance is measured at 30 June, which affects next year's contribution eligibility
- Start early: If you have a large taxable component, don't leave it until age 74 — you may run out of time and cap space to fully convert
When It Makes Most Sense
💡 Best Candidates for Recontribution
- Non-dependant beneficiaries (adult children)
- High taxable component percentage
- Significant super balance (where 17% tax is meaningful)
- Under 75 with contribution eligibility
- TSB under
- Reasonable health (time for strategy to work)
Alternatives to Consider
The recontribution strategy isn't the only option. Depending on circumstances:
- Reversionary pension: Nominating your spouse as reversionary means they receive the pension tax-free, deferring any death benefit tax issue
- Spending taxable component first: Drawing down super faster (if you have other assets) naturally reduces the taxable component over time
- Life insurance outside super: If leaving a legacy is important, insurance owned outside super avoids this issue entirely
- Binding death benefit nominations: Ensuring benefits go to tax dependants where possible (though this isn't always an option)
Common Questions
Does my super fund need to know what I'm doing?
No — you're simply making a withdrawal and a contribution. These are normal transactions. However, some funds may ask the purpose of large contributions for their records.
Can I do this multiple times?
Yes, subject to contribution caps. With a annual NCC cap (or using bring-forward), larger balances may require multiple years to fully convert.
What if I die partway through?
You'll have already improved your component mix for any amounts already recontributed. Even partial completion provides some tax benefit.
Is there any downside for me personally?
Not really — the strategy doesn't change your personal tax position (withdrawals and pension payments are still tax-free for you after 60). It purely benefits your beneficiaries.
Need Help with Recontribution Planning?
This strategy involves contribution caps, TBC, timing, and estate planning considerations. Professional guidance ensures you maximise the benefit.
Last updated: January 2026
Disclaimer
NOT PERSONAL ADVICE — the recontribution strategy has tax, contribution cap, and estate planning implications. Always seek professional advice before implementing. This information is general only.