The Australian Government recently announced that if you have been financially affected by COVID-19, you may be able to access some of your superannuation early. So what does this mean for those living abroad? Can you access your superannuation? And more broadly, should you?
Superannuation is money set aside during your working life for when you retire. That's taken straight from the ATO's website alongside the sentence:
Your super is your future.
On the 20th of April the ATO announced that you could gain early access to up to $10,000 of your superannuation before June 30, 2020, and another $10,000 between July 1, 2020 and June 30, 2021:
Individuals financially affected by COVID-19 can access some of their superannuation early. Individuals will not need to pay tax on amounts released and will not need to include it in their tax return.
The idea behind this initiative is allowing those who desperately need money to get access to funds to ensure that they can support themselves during the current economic downturn.
This in and of itself sounds like a fantastic way to support yourself without having to go to the Government for support and you can possibly keep yourself and your family alive and well. I do truly understand that.
But… I know I'm not in charge of your finances, I mean hell, I'm just a guy on the internet who has a disclaimer down the bottom emphasizing that my advice is just general and shouldn't be relied upon as personal advice.
So you should take all of this with a grain of salt.
Should you take advantage of early access to your Superannuation?
No. Not unless you are absolutely desperate.
As Jason Stoch, Certified Public Accountant, in my Regular Checkup #2 said:
You’re essentially getting short term gain, but longterm pain because you’re missing out on all of the growth from that income in your super.
Basically, you're reaching into the money that you will need for your retirement, and you're drastically reducing the amount of interest you are going to get on that money.
That means that for every dollar you're taking out now, even if everything else remained the same, over the next 30 years (assuming a few things) you could be missing out on $25-30,000 down the road.
In addition to that, with the stock market being at a real low, you're seeing the value of your super much lower than it might have been a few months ago. When the stock market goes back up, so will your super, because your investment value will increase. If you take your money out now, you're accepting the losses as they are now, you're not giving your account a chance to rebound.
An important addition for those non-Australian residents living abroad
For Australians living in Australia, early access to your super is tax-free, which means you get full access to that money and you don't have to worry about paying extra tax for it.
If you are an Australian living abroad (reading this, you probably are) you are probably not a resident of Australia for tax purposes anymore. You can find out what that means here.
Because of this, taking money out of your super may result in extra income tax for you in the United States.
This means that not only are you taking money out of your future retirement savings, but you're also getting slugged with taxes doing it.
It's very important to talk with a tax accountant before you do this to make sure you've assessed the impact of what you're doing.
What about my 401k?
Similar to Australia, the CARES Act also included a number of provisions for early access to your 401k:
Individuals affected by COVID-19 can withdraw up to $100,000 from employee-sponsored retirement accounts like 401(k)s and 403(b)s, as well as personal retirement accounts, such as traditional individual retirement accounts, or a combination of these.
The 10% penalty will be waived for distributions made in 2020.
The same thing applies as above though, with you damaging what you could have in your account down the track.
There are also tax implications in the U.S. (differently from Australia) related to whether you want to pay the money back or not.
Small changes now make huge ripples down the line three, five, and 30 years from now! The take-home message from all of this: Accessing your retirement savings should be an absolute last resort.
What should you do instead?
Back to Jason:
It’s probably best to take money from your savings first and shares and your health savings accounts before drawing from your super and 401k.
Look to your savings first!
Yes, it hurts incredibly to spend them, but you're going to be better off down the line than you would be. It's tough to project that far into the future, I know, but this is time to pretend you're a grandpa or grandma and whether you would prefer to be pinching pennies or happy with your past-self for making extra sacrifices during that bloody virus time.
Anything you can do to avoid accessing your retirement funds. Do the math(s).
I really need early access to my superannuation, how is it done?
Ok so if all of this has been a great journey of words but you still need access to your super, here's how from Jason:
… just in terms of the application process, if you have a MyGov account, it’ll take you five minutes to just answer the questions and then you’ll be able to draw it very quickly .
To do this, you need to head to My.Gov.Au and link your Tax File Number to your account. As someone living abroad, you will need to download the MyGov app on your phone for a confirmation number (you can't use your foreign mobile number) but you shouldn't have too much trouble navigating that!
From there, you really can quite easily request to withdraw your money. It's only a matter of clicks to confirm that you meet the qualification requirements.
One hurdle that people have met is the requirement for an Australian bank account to pay into. If you do not have an Australian bank account, reports are that you can pay into a family member's account, but I would more strongly recommend reaching out to banks you might have previously had accounts with and ask about opening an account with them. It's only temporary but they will help point you in the right direction.
Have any extra information? Comment below!
