Most Australians assume that whatever is left in their super passes to their children untouched. It doesn’t. If your adult children are financially independent — which almost all of them will be by the time you die — they are not tax dependants for superannuation purposes. That means they pay tax on the taxable component of your super death benefit: generally 17% (15% plus Medicare) when paid directly by the fund, and up to 32% on any untaxed element.
On a $600,000 super balance that’s mostly taxable component, that’s a tax bill running well into six figures. It’s often called super death tax, or the dreaded death tax, and it’s entirely legal, entirely routine, and often avoidable with planning.
The recontribution strategy reduces the tax your children pay on your super by withdrawing a lump sum and recontributing it as a non-concessional contribution, which converts more of your balance from taxable component to tax-free component before death. For Australian retirees aged 60 to 74 with super under the transfer balance cap who expect to leave money to adult children, that can materially reduce or eliminate the tax those children would otherwise pay on a super death benefit. This article explains how the taxable and tax-free components work, how death benefits are taxed, the eligibility rules and mechanics of a recontribution strategy, how the proportioning rules affect the result, and the main limits, risks and points where personal advice matters.
Why Super Has a "Super Death Tax" at All
Your super balance is made up of two components:
The tax-free component — money that entered super from after-tax sources; the non taxable component consists principally of your non-concessional contributions. When withdrawn, or paid to any beneficiary, it’s tax-free.
The taxable component — money that entered before tax, principally employer SG, salary sacrifice and personal deductible contributions, plus all the investment earnings on your balance over decades. This includes salary sacrifice contributions, which are contributions an employer pays on your behalf.
For most working Australians, the taxable component is by far the larger of the two. A career of employer contributions and compounding earnings builds a big taxable balance and a small tax-free one.
While you’re alive and over 60, this doesn’t matter. Withdrawals are tax-free regardless of component, which is still relevant for retirement planning. But on death, the components suddenly matter enormously:
Paid to a tax dependant (spouse, minor child, financial dependant, interdependant) → entirely tax-free, both components.
Paid to a non-dependant (a financially independent adult child, who is generally considered non dependants under tax law, unlike minor or dependent children) → the tax-free component passes tax-free, but the taxable component is taxed.
So the entire question becomes: how much of your super is taxable component when you die?
What the Recontribution Strategy Actually Does for Your Super Death Benefit
The strategy shows how a super recontribution strategy works by withdrawing part of your balance and contributing it back so the tax components change. Here’s how:
Withdraw a lump sum from your super. You can usually do this once you reach preservation age and have met a condition of release; if you’re 60 or over, this withdrawal is tax-free to you, regardless of which component it comes from.
The money lands in your bank account — a real transaction, not an accounting entry, and the money returns to your control before it goes back into super.
Recontribute the same amount back into super directly as a non-concessional (after-tax) contribution from your personal savings, without claiming a deduction.
Because the money is now entering super as a non-concessional contribution, it becomes tax-free component. This is effectively converting part of the taxable component into a non taxable component, which can reduce the kids tax burden when adult kids receive the benefit. You’ve taken money that would have been taxed at 17% in your children’s hands and turned it into money that passes to them tax-free.
The withdrawal costs you nothing in tax. The recontribution costs you nothing in tax. Your balance is unchanged. Only the composition has shifted.
A Worked Example
Consider a retiree aged 66 with $600,000 in super, of which $500,000 is taxable component and $100,000 is tax-free. Two financially independent adult children are the intended beneficiaries, and the strategy is aimed at preserving more family wealth when super is eventually passed on as inheritance.
Without any strategy: the $500,000 taxable component is taxed at 17% when paid directly by the fund. When the kids receive that taxable component, the tax can be a hefty sum. That’s $85,000 in tax, leaving the children $515,000.
With a recontribution strategy: using the bring-forward rule, they withdraw $390,000 from personal savings and recontribute it as a non-concessional contribution. That $390,000 is now entirely tax-free component. The remaining taxable component drops substantially, and the eventual tax bill for the children falls by tens of thousands of dollars.
Repeat the exercise a few years later (the bring-forward can generally be used again once the period expires) and the taxable component can be reduced further still, creating projected tax savings of many tens of thousands more over time.
The Proportioning Rule: Why It Takes Time
Here’s the catch nobody explains clearly. You cannot choose to withdraw only the taxable component. Every withdrawal comes out proportionally from both components, in the same ratio as your account balance.
So if your balance is 80% taxable and 20% tax-free, a $100,000 withdrawal takes $80,000 of taxable and $20,000 of tax-free. You can’t cherry-pick.
This means a single recontribution won’t wash the taxable component away entirely. It shifts the ratio, and each subsequent round shifts it further, with diminishing returns. Which is why the strategy is usually implemented in stages over several years, not as a one-off.
A technique advisers use: contribute the recontributed amount into a separate super account or a separate pension interest, rather than back into the same balance. This “quarantines” the 100% tax-free money so it doesn’t get diluted by the taxable component, and preserves the clean split for future withdrawals and for your beneficiaries.
Who Can Use It: The Eligibility Gates for Adult Children
The strategy sits in a specific window, because you must be able to both withdrawals and contributions at the same time. You generally need:
Access to your super. You’ve met a condition of release — usually turning 60 and retiring, leaving a job after 60, or reaching 65 (unrestricted access) — after preservation age.
To be under 75. Non-concessional contributions can’t be made once you reach 75. Precisely, if you’re turning 75, the recontribution must be received by your fund no later than 28 days after the end of the month in which you turn 75. (Downsizer contributions are the exception, and remain available at 75+.)
A total super balance below the general transfer balance cap — $2.1 million as at 1 July 2026 — at 30 June of the previous financial year. Above that, your non-concessional cap is nil and the strategy is unavailable, so the transfer balance cap and contribution balance limits both matter.
Non-concessional cap headroom. The annual cap is $130,000 for 2026–27. Under the bring-forward rule (available if you’re under 75 at the start of the year), you may contribute up to $390,000 across three years, depending on your total super balance. These annual contribution caps are applicable and must be monitored so you do not exceed the non-concessional limits.
In practice, the sweet spot is ages 60 to 74, with a total super balance comfortably under the cap.
Where It Doesn't Help
Be clear-eyed about when the strategy adds nothing:
If your spouse is the sole beneficiary. A spouse is a tax dependant and receives the whole benefit tax-free anyway. The strategy adds no value unless you’re planning for what happens after they die.
If your total super balance exceeds $2.1 million. You can’t make non-concessional contributions at all.
If you’re 75 or over. The window has closed (unless a downsizer contribution is available to you).
If your balance is small. The transaction costs, buy/sell spreads and administrative effort may outweigh a modest tax saving.
The Traps
It must be a genuine transaction. The money must actually leave your fund and land in your bank account. The ATO can, and does, treat artificial or purely-on-paper arrangements as never having occurred. The tax rules here are complex, and poorly executed steps can run afoul of anti-avoidance rules. There’s also Part IVA (the general anti-avoidance provisions) sitting in the background, so the strategy must be implemented properly and be defensible.
Transaction costs and CGT inside the fund. If your fund has to sell investments to fund the withdrawal, buy/sell spreads and capital gains tax within the fund can erode the benefit. In-specie transfers can sometimes avoid this, depending on your product.
Transfer balance cap interaction. If you’re drawing an account-based pension, commuting it to make the withdrawal — and then restarting it — has transfer balance cap consequences that need to be managed carefully. That matters because super withdrawals generally can have knock-on effects beyond the immediate payment.
Centrelink implications. Moving money in and out of super can affect Age Pension assessment, particularly around the timing of when super becomes assessable.
Insurance. A large withdrawal can reduce or cancel insurance held inside your super account.
Where Professional Advice Adds Value
The recontribution strategy is a powerful super strategy, but there are a lot of all the ins and outs to manage and it is genuinely easy to get wrong. It requires you to be inside a specific age and balance window, to understand how the proportioning rule limits what a single withdrawal can achieve, to time bring-forward triggers correctly, and to avoid tripping over the transfer balance cap, Centrelink assessment, insurance cover, or the ATO’s expectation that the transaction be real.
At Money Path, we model whether the strategy is worth doing for you at all — starting with the actual tax your beneficiaries would face, not a generic assumption. We map your taxable and tax-free components, calculate the tax exposure for your intended beneficiaries, and quantify what a staged recontribution would actually save them. We work out the timing: how many rounds, what amounts, whether to trigger the bring-forward now or wait, and how to quarantine the tax-free money so it isn’t diluted. We also check whether the strategy is actually available across your accumulation account as well as any pension interests. We check the interactions that catch people out — transfer balance cap, Age Pension entitlements, insurance inside super, and any CGT triggered inside your fund. A financial adviser can also help you navigate very important changes in super and tax settings over time. And we make sure your binding death benefit nomination actually directs the super to the people you’ve done all this planning for.
Done well, this is one of the highest-value pieces of estate planning available to Australian retirees. Done casually, it can cost more than it saves.
If you expect to leave super to adult children, talk to the team at Money Path about whether a recontribution strategy makes sense for you — while you’re still inside the window to use it.
Frequently Asked Questions
What is a recontribution strategy? A super recontribution strategy is withdrawing a lump sum from your super and immediately recontributing it as a non-concessional (after-tax) contribution. Because the money re-enters super as an after-tax contribution, it becomes tax-free component. This converts taxable component into tax-free component, reducing the tax your non-dependant beneficiaries — typically adult children — will pay on your super death benefit.
Why do my adult children pay tax on my super? Because a financially independent adult child is not a “tax dependant” for superannuation purposes, while dependent children are treated differently. Tax dependants — a spouse, a child under 18, a financial dependant or interdependant — receive super death benefits entirely tax-free. Non-dependants pay tax on the taxable component: generally 17%, including the medicare levy, on the taxed element when paid directly by the fund, and up to 32% on any untaxed element.
Who is eligible for a recontribution strategy? You need to be able to both withdraw from and contribute to super, with those rules only applicable once you can lawfully access super. Generally that means you’re aged 60 to 74, have met a condition of release (retired after 60, left a job after 60, or reached 65), your total super balance is below the general transfer balance cap ($2.1 million as at 1 July 2026) at the previous 30 June, and you have non-concessional cap headroom. Non-concessional contributions can’t be made from age 75.
How much can I recontribute? The non-concessional cap is $130,000 for 2026–27. If you’re under 75 and eligible for the bring-forward rule, you may be able to contribute up to $390,000 over three years, depending on your total super balance at the previous 30 June. Because withdrawals come out proportionally from both components, the strategy is often repeated in stages over several years.
Why can’t I just withdraw the taxable component? Because of the proportioning rule. Every withdrawal from super comes out proportionally from your tax-free and taxable components, in the same ratio as your balance. If your account is 80% taxable, a withdrawal is 80% taxable and 20% tax-free. You can’t cherry-pick, which is why one recontribution shifts the ratio rather than eliminating the taxable component outright.
Is the recontribution strategy legal? Yes, when done properly. This is not financial alchemy: the ATO accepts recontribution strategies, but the withdrawal and recontribution must be a genuine transaction — the money must actually leave your fund and enter your bank account, not just be recorded on paper. Artificial arrangements can be disregarded, and the general anti-avoidance provisions (Part IVA) apply, so it should be implemented with professional advice.
Does a recontribution strategy help if my spouse inherits my super? Generally not. A spouse is a tax dependant and receives your super death benefit entirely tax-free regardless of its components. The strategy adds value when your beneficiaries are non-dependants, such as adult children, or when you’re planning for what happens to the money after your spouse also dies.
Are there risks or costs? Yes. Selling investments to fund the withdrawal can trigger buy/sell spreads and capital gains tax inside your fund. Commuting and restarting a pension has transfer balance cap consequences. Moving money in and out of super can affect Age Pension assessment. A large withdrawal can also reduce or cancel insurance held inside super. These need to be weighed against the projected tax saving.
Can I recontribute into my spouse’s super account instead? Yes, provided they’re eligible to receive contributions. This can be useful for evening up balances between partners, which helps with transfer balance cap efficiency and Division 296 exposure. The recontribution is treated as a spouse contribution and counts towards their non-concessional cap, subject to their own total super balance and age eligibility.
This article is general information only and does not take into account your personal objectives, financial situation or needs. Super caps, thresholds and rules are indexed and change; figures are current as at the date of writing for the 2026–27 financial year. Always confirm current figures with the ATO and seek personal financial and tax advice before acting.
