Have you recently had a TPD payout? Has the claim been finalised and you are now in receipt of a large sum of money and unsure what to do? Continue reading as we discuss the steps following on from a TPD claim being paid out to an individual.
Once a TPD claim is finalised it will either be paid to your superannuation account directly or to you personally. If you have held TPD insurance within your superannuation and have paid this insurance premium through your super, then generally your TPD claim will be paid to your superannuation account. If this is your situation then your TPD will fall under some of the superannuation rules. If you are under the preservation age for accessing superannuation, you will be able to access and withdraw this TPD portion however there will be tax implications on the withdrawal. You will generally be paying 22% tax on the total TPD amount (however this can differ depending on the tax free component in your super).
As a withdrawal under preservation age can result in tax payable, it is important that you discuss with your financial adviser the pro’s and con’s and seek financial advice. Here at Lifelong Wealth, our north Brisbane financial planners will be able to provide advice for your personal situation to discuss how a withdrawal could affect your situation. They will run through a range of questions and assess your individual situation to see whether an immediate withdrawal, a partial withdrawal or retaining the amount in super until preservation age will be the most beneficial for your situation. For example, see the below scenario:
57 year old Linda received an approved TPD claim of $200,000 earlier this year. She did not seek any financial advice and decided to withdraw the full amount from her super. She was then informed that she had to pay $30,000 tax on this withdrawal as it was processed before her 58th Birthday (her preservation age). Had it been processed on her birthday instead; she would have had to pay no tax as she reached her preservation age and the withdrawal was under the tax free limit of $215,000. After seeking advice, Linda and her adviser was able to have her superfund reverse this withdrawal and re-process later on it saving her this $30,000 in tax.
Our North Brisbane Financial Advisors will also discuss with you the implications of leaving the TPD payout in superannuation and how you are invested to ensure you are invested according to your preference. Your TPD payout is likely to be invested the same as your current superannuation funds unless you change it, so it is important to review this as it can be affected by market volatility. You might also be unaware of the returns over short and long term periods and so it is vital to discuss this with your adviser so you are not shocked by movements in the market.
If you have been paying your TPD insurance premium outside of your superannuation and the claim was accepted under this component, then you will generally get the payout paid directly to your account. Due to the TPD being paid outside of super, you will generally not be liable for tax implications on this payout as you will be receiving the money directly and do not need to meet any superannuation rules to access. Again, we would recommend meeting with one of our Bald Hills Financial Planners to discuss how to best utilise this money as it’s unlikely you would have been in receipt of such a large sum before. Once we get an overall idea of your financial situation we can best guide you and provide strategies on making this money work for you. This includes discussions on paying off a mortgage or other debt, setting aside money for your children’s education, planning for medical expenses or home modifications or whatever else is pertaining to your individual situation.
There are many things to take into consideration when you get a TPD payout. A few other factors could affect your situation such as your Centrelink payments. The TPD money could affect your assets and income test for pension payments and other allowances. You will also need to take into consideration the medical expenses, home and car modifications that arise with your new medical condition. This can also include carers costs if you need regular care or decisions about your children if you have been the primary carer. There are so many aspects that can affect a TPD pay out that we believe it’s vital to seek out financial advice so that you can have the best outcome considering the circumstances.
Book an appointment online with one of our experienced insurance advisers at our Bald Hills location or give us a call on 07 3188 5140 so that we can can assist you through a lengthy and confusing process.