If you are preparing to move into residential aged care, you may need to decide how to fund your accommodation.
For people with a self-managed super fund (SMSF), this can raise an important question: should you use some of your super to help pay for aged care?
The answer will depend on your individual financial circumstances.
Your SMSF may be a significant financial asset
An SMSF may represent a substantial part of your overall wealth. For this reason, it should not be overlooked when considering how to fund residential aged care.
There are several options for paying for accommodation.
One option is to pay a Refundable Accommodation Deposit (RAD) as a lump sum. Alternatively, you can make ongoing Daily Accommodation Payments (DAPs). You can also use a combination of the two.
Could you use your SMSF to pay a RAD?
You might consider withdrawing money from your SMSF to help pay a RAD rather than selling other investments.
For people over age 60, withdrawals from super may be tax-free.
However, this does not automatically mean withdrawing money from your SMSF will be the right option for you.
Consider what happens when money leaves your SMSF
Before making a withdrawal, it is important to consider the longer-term implications.
A RAD is mostly refundable when you leave care. However, if you withdrew the money from your SMSF to pay the RAD, you generally cannot simply put those funds back into the SMSF later.
This may affect your broader financial position and should form part of your decision.
Don’t overlook tax and estate planning
There may also be tax implications to consider.
Your super can be tax-effective during your lifetime. However, tax may apply when super benefits pass to certain beneficiaries, including adult children.
These potential tax consequences may influence your decision to retain money in super or use it to fund aged care.
It can also be a good opportunity to review your binding death benefit nominations and broader estate planning arrangements.
Look at your whole financial position
There is no single funding strategy that will suit everyone.
Before using your SMSF to fund aged care, consider the impact on your cash flow and overall wealth position. Your superannuation and estate planning arrangements may also form part of the decision.
Looking at the bigger picture can help you make a more informed choice about how to fund your move into care.
Considering using your SMSF to fund aged care?
At Forman Financial Services, we can help you understand your aged care funding options and consider how your SMSF fits into your broader financial strategy.
Contact us here to discuss your circumstances and aged care financial planning needs.
Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions.
Legislation and figures relating to aged care and superannuation can change regularly. Therefore, the information above may not reflect the current position.
We recommend seeking professional advice before making decisions about your individual circumstances. If you would like advice on this matter, please contact us.