‘Reverse’ recontributions a solution for funds with limited cash
A recontribution strategy in reverse can be a useful option for clients with lower balances and limited cash in their fund.
Speaking at an event this week, Heffron managing director Meg Heffron said one of the biggest problems raised by clients when discussing recontribution strategies is having a lack of cash in the fund to undertake that strategy.
“[The client might say] I don’t have enough cash to do a recontribution strategy, the fund is fully invested, and I don’t have the cash to take out and put back in again,” she said speaking to attendees at the Heffron Super Intensive Day.
“Technically [in that situation], you could do a recontribution via an in specie transfer of assets. So if the fund has got a share portfolio, you could in specie some shares out and then back in again, but I would never do that because it's too much hassle. I would convince them to sell the shares and use the cash to do the transaction.”
However, there may be another option, she said, if total super balance isn’t a problem.
“If the balance is low enough that you’ve got no trouble making contributions you can actually switch the transactions around, which might sound counterintuitive but there’s actually nothing to stop you,” she said.
Ms Heffron gave an example of Joan, who has $330,000 in personal cash available.
“There’s nothing to stop her putting that in and then taking money out of her original pension [so] a recontribution in reverse. It achieves the same thing, it just reverses the transactions,” she explained.
“She needs to be smart about her pensions though. She’d need to make sure that her original super had already been turned into a pension before she put the new money in.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
