Ask the Expert: Diversify investments for flexibility and financial freedom
Question 1
We have been lucky enough to have paid off our owner-occupied mortgage. We are wondering what to do with the funds we used to pay off the mortgage.
We have two investment properties with mortgages, a healthy share portfolio and are contributing the maximum amount to super.
Unsure if we should be paying off our investment properties or putting the money into the sharemarket. Currently, we are doing both.
My partner will retire in seven years. Thanks so much for any advice. I realise that you can’t provide personal advice, but it would be great to know options.
Nicola
You are doing very well Nicola – good job.
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As you are in a strong position with good cash flow, it does open up further options. Some things to consider:
- With investment properties and shares, you sound like you have an aggressive investment portfolio. Ensure this matches your risk appetite going forward.
- This could be especially true if you own your own home and have a further two properties. If a significant part of your wealth is within property already, look to diversify any further investments outside of property.
- While your investment properties’ loans, I assume, are tax deductible, ensure you have the repayments well and truly under control with a buffer. It may be worth obtaining advice about the structure of the loans to ensure you are optimising the best tax outcomes.
- Your investments should be tied to your goals. Are you both wanting to retire before age 60? (i.e. the age you can access super). If yes, continue to invest outside super.
- If one of you will be retired after 60, then still look at contributing to super as this provides significant tax advantages. I note you stated you are already contributing the max to super, but is that just pre-tax contributions you are referring to? Given your situation, after tax non-concessional contributions should also be considered.
- If you have any other, shorter-term goals, major expenses or plans to go part-time/reduce your income, then ensure this is factored in. Funds may need to be kept aside in high-yielding accounts that are easily accessible.
- Given you have loans and high income, ensuring you have the appropriate personal insurances is critical. Life, total and permanent fisability, trauma and income protection.
I strongly support saving money just for the sake of saving money, as you never know what is around the corner. As you build a larger portfolio, this provides you with further options, flexibility and financial freedom.
However, your investment decisions should also be guided by your timeframe, attitude to risk and your main goals.
You should also consider obtaining personal financial advice.
Question 2
I have withdrawn $200,000 from my super and paid off the mortgage on my investment property.
I want to sell that property, pay off the mortgage on my family owner-occupied home and transfer the balance into my super.
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I have $800,000 in super. What are the tax implications and what are the limits for such additions.
When you sell your investment property, you may be liable for capital gains tax if you have made a profit (gain).
In terms of contributing the proceeds to super, this depends on your age.
If you want to claim a tax deduction for a personal superannuation contribution (called concessional contributions), you have to be either under 67, or under 75 and meet a work test.
These contributions are a popular way of reducing, or in some cases eliminating, any potential CGT. There is also a cap on how much you can contribute as a concessional contribution. The standard cap is $30,000.
Given your balance is more than $500,000, it doesn’t look like you may be able to use carry forward contributions (you should refer to MyGov or contact the ATO).
If you are under 75 you can make non-concessional after-tax contributions depending on your total super balance, as outlined in the table below:
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
