Super Withdrawal Tax: What You'll Actually Pay (or Not)
How much tax you pay on a super withdrawal, by age and component. The low rate cap, lump sums vs income streams, early access, and death benefits explained.
By Timothy Hirou GaschereauPublished 9 min read
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Super tax is one of those topics that sounds complicated but mostly isn't, once someone explains it plainly. This article covers exactly what you pay, when, and why, with no jargon and no fluff. It's part of our retirement and super series.
🎯 The essential: If you're 60 or over and meet a condition of release, you pay zero tax on super withdrawals. Under 60, the rules depend on your age, your super's components, and whether you take a lump sum or income stream. The low rate cap for 2024-25 is $245,000.
The two components inside your super
Before the tax rates make sense, you need to know what's actually sitting inside your super. Every super balance is made up of two parts.
The taxable component covers employer contributions (the 11.5% SG), salary sacrifice contributions, and fund earnings. All of this was taxed at 15% going in, inside the fund. It's the bigger slice for most Australians.
The tax-free component is made up of after-tax contributions, known as non-concessional contributions. This is money you put in from your take-home pay, already taxed at your marginal rate. It's never taxed again on the way out.
Your fund statement shows the split. If you've only ever had employer contributions and no personal after-tax contributions, your balance is likely almost entirely taxable component. That matters a lot for the rates below.
Super withdrawal tax after age 60
Here's the good news: once you're 60 and meet a condition of release, everything is tax-free. Both components, lump sum or income stream, zero tax. You don't need to declare it as income on your tax return. Full stop.
Why? The government's logic is that contributions were already taxed at 15% on the way in. Hitting you again on the way out, after decades of compounding, would be a double-dip. Turning 60 is effectively the reward for waiting. Super tax after 60 is simply not a thing, which is why most retirement planning focuses on getting money into super before then. (See how much super you can withdraw after 60 for the mechanics.)
Super withdrawal tax between preservation age and 59
This is where it gets a little more involved, but it's still straightforward once you know the numbers.
What's preservation age? For anyone born after 1 July 1964, preservation age is 60. If you were born before that date, your preservation age may be 55 to 59 depending on your birth year. Check the ATO's table if you're in that cohort.
Tax-free component: still completely tax-free, regardless of age. Taxable component: the low rate cap applies.
The low rate cap for 2024-25
The low rate cap for 2024-25 is $245,000. This is a lifetime cap, indexed annually, and it tracks the total taxable component you've withdrawn tax-free across your lifetime, not just in one year.
- First $245,000 of taxable component withdrawn: 0% tax (though Medicare levy can still apply depending on your total income)
- Above the cap: 15% + 2% Medicare levy = 17% effective rate
Worked example: Sarah, age 58
Sarah is 58, has reached preservation age, and takes a $300,000 lump sum from her super. Her fund tells her $200,000 is the taxable component and $100,000 is the tax-free component.
- Tax-free component ($100,000): $0 tax
- Taxable component ($200,000): falls entirely within the $245,000 low rate cap, so $0 tax
- Total tax: $0
If Sarah had already used $100,000 of her lifetime cap in a previous withdrawal, only $145,000 of the taxable component would be covered. The remaining $55,000 would be taxed at 15% + Medicare levy. Accessing super between preservation age and 59 requires meeting a condition of release, such as retiring, starting a transition-to-retirement income stream, or reaching 65. You can't just ask for it because you feel like it.
Super withdrawal tax before preservation age
The short version: you generally can't access super before preservation age, and for good reason. The whole point of superannuation is that it stays locked away until retirement. There are narrow exceptions where early access is allowed:
- Severe financial hardship (strict criteria apply)
- Compassionate grounds (specific medical or housing situations)
- Terminal illness (medical certification required)
- Permanent incapacity
- Temporary residents departing Australia
If you do access super early under one of these exceptions, the tax treatment is:
- Tax-free component: still tax-free
- Taxable component: taxed at 20% + 2% Medicare levy = 22% effective rate, or your marginal rate if that's lower
Early access is not a loophole. The ATO and your super fund both scrutinise these claims carefully. If you're considering it, get proper advice first.
Lump sum vs income stream: does it change the tax?
Yes, it can, particularly in the years between preservation age and 59.
After 60: both are completely tax-free. The choice between lump sum and income stream is about cash flow and investment strategy, not tax.
Between preservation age and 59:
- Lump sum: the low rate cap applies as described above. Within the cap, the taxable component is tax-free. Above the cap, it's 15% + Medicare levy.
- Income stream (account-based pension): the taxable component is taxed at your marginal rate, but you get a 15% tax offset on the taxable portion. Effectively, a 15% discount on your tax bill.
For example, if your marginal rate is 32.5% and you're drawing an income stream, you pay 32.5% minus 15% = 17.5% on the taxable component. That's similar to the above-cap lump sum rate, but the offset makes income streams more tax-efficient for larger amounts above the cap.
If you're between preservation age and 59 and your taxable component exceeds the low rate cap, an income stream often works out cheaper from a tax perspective than a lump sum. Under preservation age, an early-access income stream is taxed at your full marginal rate with no offset, the least tax-efficient option of the lot.
Death benefit tax
Super doesn't automatically form part of your estate, so it's worth knowing how it's taxed when it passes to someone else.
Tax-dependants, which includes your spouse, de facto partner, minor children, and anyone financially dependent on you, receive super death benefits completely tax-free, as a lump sum or income stream.
Non-tax-dependants, most commonly adult children who weren't financially dependent on you, pay 15% + 2% Medicare levy on the taxable component of a lump sum death benefit. The tax-free component remains tax-free.
This is sometimes called the “death tax” on super, and it catches a lot of families off guard. Nominating a beneficiary on your fund's form is essential, and understanding who qualifies as a tax-dependant can meaningfully change the outcome. A financial adviser or estate planning lawyer can help you structure this properly.
Super withdrawal tax comparison table
| Situation | Tax-free component | Taxable component |
|---|---|---|
| Age 60+ (lump sum or income stream) | 0% | 0% |
| Preservation age to 59, lump sum (within $245,000 cap) | 0% | 0% |
| Preservation age to 59, lump sum (above cap) | 0% | 15% + 2% Medicare |
| Preservation age to 59, income stream | 0% | Marginal rate minus 15% offset |
| Under preservation age, lump sum (early access) | 0% | 20% + 2% Medicare (or marginal if lower) |
| Under preservation age, income stream | 0% | Marginal rate + Medicare |
| Death benefit to tax-dependant | 0% | 0% |
| Death benefit to non-tax-dependant (lump sum) | 0% | 15% + 2% Medicare |
The bottom line: for the vast majority of Australians who wait until 60, super withdrawal tax simply isn't a concern. The complications only bite if you access super early or in the years between preservation age and 60. Know your components, know your age band, and if you're near the low rate cap, get advice before you withdraw. It's also worth understanding how this fits your broader Age Pension picture.
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❓ Frequently asked questions
Is super withdrawal tax-free after 60?
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Yes. Once you're 60 and meet a condition of release, all withdrawals (lump sum and income stream) are completely tax-free, regardless of which component they come from. You don't need to declare them on your tax return.
What is the low rate cap and who does it apply to?
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The low rate cap is a lifetime limit on the taxable component of super you can withdraw tax-free. For 2024-25, it's $245,000. It applies only to people who have reached preservation age but are under 60. Once you've used the cap across all withdrawals, any further taxable component is taxed at 15% plus Medicare levy.
Can I withdraw my super tax-free before 60?
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The tax-free component is always tax-free, at any age. But the taxable component, which is most people's super, is taxed at 20% plus Medicare levy if you access it early. And early access is only available in narrow circumstances: severe financial hardship, compassionate grounds, terminal illness, permanent incapacity, or departing Australia as a temporary resident.
How much tax do I pay on a super withdrawal? Does it go on my tax return?
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If you're 60 or over, no: tax-free super withdrawals don't need to be declared. If you're between preservation age and 59, lump sums within the low rate cap don't need to be declared as taxable income, but your fund will issue a PAYG payment summary for income streams. Check with a registered tax agent for your specific situation.
What's the difference between the tax-free and taxable components?
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The tax-free component is made up of after-tax (non-concessional) contributions: money you put in from your take-home pay, already taxed. The taxable component is everything else: employer contributions, salary sacrifice, and fund earnings, all of which were taxed at 15% going in. Most Australians have mostly taxable component.
Does withdrawing super affect my Age Pension?
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Super withdrawals can affect your Age Pension entitlements through the assets test and income test. A lump sum withdrawal that reduces your super balance may reduce your assessed assets, but if you spend or gift the money, gifting rules apply. This is complex territory. A financial adviser or Services Australia can walk you through your specific situation.
📚 Recommended reading
Retirement Made Simple
Noel Whittaker
Retirement Made Simple
Noel Whittaker
Australia's godfather of personal finance demystifies super, the pension and making your savings last. The plain-English retirement handbook every Aussie should read before they stop working.
The Barefoot Investor
Scott Pape
The Barefoot Investor
Scott Pape
Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Super Made Simple
Noel Whittaker
Super Made Simple
Noel Whittaker
A focused, up-to-date guide to actually understanding your superannuation, from one of Australia's most trusted finance writers.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only, not financial advice. Super tax rates, the low rate cap and thresholds change over time, so treat the figures here as a starting point and check the latest ATO guidance. Super and tax decisions are personal, so speak to a licensed financial adviser or registered tax agent about your own circumstances.
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Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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