Your superannuation could hold the key to your dream of owning a business. However, understanding the rules of accessing superannuation for business purposes is crucial.
Many aspiring entrepreneurs find themselves lacking the necessary startup capital in their bank accounts. Instead, they may have substantial funds tied up in their superannuation accounts. But herein lies the challenge: conventional access to superannuation is typically granted at the age of 65, known as the preservation age. So, does this mean you have to delay your entrepreneurial ambitions until then?
Thankfully, there are avenues to explore if you wish to access your super before reaching 65.
Accessing Super Before Age 65
There are primarily two ways to tap into your superannuation before turning 65:
- Retirement: If you decide to retire without any intention of returning to work, you can access your super. However, this approach may not be suitable if your goal is to start and actively operate a business.
- Transition to Retirement (TTR): Transition to Retirement income streams, abbreviated as TTR, allows limited access to your super funds. Generally, you can withdraw between 4% and 10% of your account balance annually. Keep in mind that once your super transitions to a TTR account, further contributions are restricted.
The critical question becomes: can you start a business with just 10% access to your superannuation?
The answer depends on the total amount saved in your super fund. Additionally, it’s important to note that withdrawals under this option may incur taxes.
Interestingly, a third option becomes available at age 60. If you leave your current employment or shut down an existing business after turning 60, you gain full access to your super funds. This applies regardless of whether you’re leaving a job or ending a business venture. With this access, you can use the funds to kickstart a new business. Since you’re over 60, you won’t be subject to taxes on withdrawals, whether taken as a lump sum or income stream.
However, there’s a caveat. If you decide to make additional super contributions for your new business, you can’t access these until you exit your employment with the new business.
Gaining Unrestricted Access at 65:
The only way to gain unrestricted access to your superannuation is by reaching the age of 65, known as the preservation age. Upon reaching this milestone, all conditions on your fund are lifted. This means you can use your saved money for any purpose, including starting a business. Withdrawals at this stage are typically tax-free, making it an attractive option if you’re willing to wait until you’re 65 to embark on your entrepreneurial journey.
Choosing the Right Business Selecting the type of business to start depends on your personal goals and financial capacity. Several sectors tend to be popular in Australia:
- Service-based businesses, such as those in textiles and telecom, form a significant part of the Australian economy, offering potential for success.
- Online businesses often prove profitable, requiring lower startup capital.
- Cafes,restaurants, and catering services can also be lucrative, despite the competition.
Ultimately, the choice comes down to your aspirations and financial situation. Consulting with a financial advisor before using your superannuation to start a business is advisable.
Risks Associated with Using Super for Business: As with any business venture, there are risks involved in using your superannuation to start a business, especially if you’re under 65. Accessing your super requires alterations to the fund:
- Under 60: Contributions to the fund are restricted during this period, preventing further retirement savings.
- Under 60: Taxes may apply to withdrawals, which contrasts with the tax-free status at the preservation age.
- The inherent risk of business failure: Statistically, a significant percentage of businesses face failure within the initial years, potentially leading
to the loss of your super savings and complicating your financial future.
Considering Your Options Starting a business using your superannuation is an option, but it’s not without risks. If you’re uncomfortable with this approach, you may explore alternatives, such as unsecured loans.
Funding Small Business offers loans ranging from $5,000 to $300,000, without requiring collateral. These loans provide an opportunity to start a business without putting your superannuation at risk.