Here’s a fact almost nobody knows about Australian super: if you’re 58 and withdraw a $100,000 lump sum from your super, the tax bill is often exactly zero. Not reduced — zero. The $260,000 lifetime low rate cap wipes it out. And if you’re 60 or older, most withdrawals are genuinely tax-free. This guide covers the 2026-27 withdrawal tax rules by age band, the tax-free vs taxable component trap that quietly costs families tens of thousands, lump sum vs income stream comparisons with real dollar examples, and the death-benefit rules that catch adult children out. Every figure is checked against the ATO’s published 2026-27 rates and thresholds.
The short answer
- Under preservation age (effectively under 60 for most of us): 20% tax on a lump sum’s taxed element — 22% once you add the 2% Medicare levy. Super is generally locked until you meet a condition of release.
- Preservation age to 59: the taxed element of a lump sum is tax-free up to the $260,000 lifetime low rate cap, then 15% above (17% with Medicare). So a $100,000 lump sum at 58 usually costs $0.
- 60 or over: taxed-element lump sums and pensions are tax-free. But the untaxed element (unfunded public-sector schemes) still cops 15% up to $1,935,000.
- Death benefits to non-dependants (typically independent adult children): 17% on the taxed element, 32% on the untaxed element, Medicare included. A $300,000 balance can lose $51,000 overnight.
Two companion pieces: our super contribution caps 2026-27 guide (you’ll need the $130,000 non-concessional cap for the recontribution strategy below) and the super calculator for modelling balances and contributions.
First, when are you even allowed to touch it?
Your preservation age depends on your date of birth:
| Date of birth | Preservation age |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| From 1 July 1964 | 60 |
If you were born after 30 June 1964 — everyone reaching preservation age since 1 July 2024 — your preservation age is 60, full stop. So the common question “can I withdraw my super at 55?” only works for the pre-July-1960 cohort, or if you meet a condition of release early: terminal medical condition (two doctors, death expected within 24 months — that payment is tax-free), severe financial hardship, compassionate grounds, or permanent incapacity. Reaching 65 gives you unrestricted access regardless.
Lump sum tax rates 2026-27: the official table
Every super payment splits into a tax-free component (after-tax contributions, spouse contributions, government co-contributions — always tax-free) and a taxable component. The taxable component further splits into a taxed element (already taxed 15% inside the fund — this is almost everyone in an APRA-regulated fund) and an untaxed element (unfunded public-sector defined-benefit schemes).
The rates below are maximum rates before the 2% Medicare levy — the ATO adds the levy on top of every rate above zero. Figures from the ATO’s key superannuation rates and thresholds for 2026-27.
Taxed element of the taxable component
| Your age at payment | Tax rate |
|---|---|
| Under preservation age | 20% (22% incl. Medicare) |
| Preservation age to 59 | Nil up to the $260,000 low rate cap, then 15% (17% incl. Medicare) |
| 60 or over | Nil — non-assessable, non-exempt income |
Untaxed element of the taxable component
| Your age at payment | Tax rate |
|---|---|
| Under preservation age | 30% up to the $1,935,000 untaxed plan cap; 45% above it |
| Preservation age to 59 | 15% up to the $260,000 low rate cap; 30% above the cap up to $1,935,000; 45% above |
| 60 or over | 15% up to $1,935,000; 45% above — not tax-free |
The headline facts: the low rate cap is $260,000 for 2026-27 — a lifetime cap (it didn’t index up this year; it’s still $260,000), reduced by anything you’ve previously applied to it. The untaxed plan cap is $1,935,000 for 2026-27 (up from $1,865,000). Beware stale articles: one popular guide still quotes the 2025-26 $245,000 cap, and another quotes a 2016-era $1.415m plan cap.
Worked examples: $100k and $400k lump sums at 58
Meet Karen, 58, born in 1968, with the full $260,000 low rate cap unused (she’s never taken a lump sum). Her $400,000 balance is 100% taxed element.
Example 1 — $100,000 lump sum: the whole amount sits under the $260,000 low rate cap, so the rate is nil. Tax: $0. Her remaining lifetime cap falls to $160,000.
Example 2 — $400,000 lump sum: $260,000 is taxed at nil; the remaining $140,000 at 15% = $21,000; plus Medicare 2% × $140,000 = $2,800. Total tax: $23,800. Effective rate on the whole withdrawal: under 6%.
The step-by-step you can reuse: (1) confirm your age band, (2) split the payment into tax-free / taxed-element / untaxed-element, (3) apply the low rate cap (lifetime — subtract anything used before), (4) apply the rates table, (5) add 2% Medicare on every taxed portion.
The proportioning-rule trap (and the recontribution fix)
Here’s the trap nobody’s articles show with real numbers: the proportioning rule. Every withdrawal splits in the same tax-free/taxable ratio as your account at that moment. You cannot just withdraw the tax-free part and leave the taxable part for later. For income streams, the ratio locks in when the pension starts.
Why it matters most: death. Take David, 68, with $550,000 in super — all taxable component (a lifetime of salary sacrifice plus earnings). He dies, and the balance goes to his independent adult son. As we’ll see below, the taxed element paid to a non-dependant is taxed at 17%: $93,500.
The recontribution strategy fixes this while David is alive. The mechanics: withdraw an amount tax-free (he’s 68, so taxed-element withdrawals are nil), then recontribute it as after-tax non-concessional contributions — up to $130,000 per year, provided his total super balance is under $2.1 million. Three annual contributions of $130,000 ($390,000) convert that slice from taxable to tax-free component. His taxable component falls from $550,000 to $160,000; his son’s future tax falls from $93,500 to about $27,200 — roughly $66,000 saved in this case.
Caveats: respect the contribution caps, watch the Division 296 $3 million threshold (see below), and get advice before moving money — the bring-forward rules and transfer balance cap add layers for larger balances.
Lump sum or pension before 60? Run the numbers
Between preservation age and 60, a taxed-element income stream is taxed at your marginal rate with a 15% tax offset; a lump sum is nil up to the $260,000 cap. In the common case, the lump sum wins decisively.
Meet Tom, 57, no other income, choosing between a $60,000 lump sum and a $60,000-per-year pension:
- Lump sum: $60,000 sits under his unused $260,000 cap. Tax: $0.
- Income stream: marginal tax on $60,000 in 2026-27 = 15% × ($45,000 − $18,200) + 30% × ($60,000 − $45,000) = $4,020 + $4,500 = $8,520. The 15% pension offset (15% × $60,000 = $9,000) wipes out the income tax entirely — but the 2% Medicare levy still applies: $1,200. Tax: $1,200.
The lump sum is $1,200 cheaper — and the gap widens with bigger payments, because the offset is capped by the tax payable while the low rate cap shelters a full $260,000 at nil. (The income-stream route can still suit people who want a steady fortnightly flow, but don’t assume it’s cheaper.)
Income stream (pension) rates at a glance
| Element | 60 or over | Preservation age to 59 | Under preservation age |
|---|---|---|---|
| Taxed element | Tax-free | Marginal rates − 15% tax offset | Marginal rates, no offset |
| Untaxed element | Marginal rates − 10% tax offset | Marginal rates, no offset | Marginal rates, no offset |
The maximum income-stream tax offset for 2026-27 is $13,125 (based on the $131,250 defined benefit income cap — see the ATO’s super income stream tax tables). Note the 10% offset on the untaxed element at 60+ — one more reason “tax-free at 60” is only true for the taxed element.
The untaxed-element surprise at 60
“Is super tax-free at 60?” — for the 90%+ of Australians in APRA-regulated funds, yes for the taxed element. But if your super sits in an unfunded public-sector or defined-benefit scheme (old Commonwealth, some state government schemes), your balance has an untaxed element that was never taxed inside the fund — and it never becomes tax-free:
- Lump sum at 60+: 15% up to the $1,935,000 untaxed plan cap, 45% above. So a $500,000 untaxed-element lump sum at 62 costs $75,000 + $10,000 Medicare = $85,000.
- Pension at 60+: taxed at marginal rates with only a 10% offset.
If you have any public-sector service history, check your fund’s benefit statement for the untaxed element before planning a retirement withdrawal.
Death benefits: the 17% adult-child trap
Superannuation law treats any child as a dependant, so your fund can pay your adult child directly. But tax law uses a narrower definition — a child under 18, a spouse, an interdependency relationship, or someone financially dependent just before your death. An independent adult child is a non-dependant for tax purposes, and the taxable component gets hit:
| Recipient | Taxed element | Untaxed element |
|---|---|---|
| Tax-law dependant | Nil — tax-free | Nil — tax-free |
| Non-dependant (e.g. independent adult child) | 17% (15% + Medicare) | 32% (30% + Medicare) |
The three roads for a $300,000 taxable-component balance: (1) withdraw it tax-free while you’re alive at 60+ — $0; (2) pay it through your estate (which adds a layer but roughly the same 17%) — ~$51,000; (3) nominate the adult child directly — $51,000. The tax-free component always escapes, which is exactly why the recontribution strategy above matters. Two housekeeping points: binding death nominations typically lapse every three years — diaries matter; and a child can only receive a death-benefit income stream (not lump sum) if they’re a tax-law dependant, ending at 25 unless permanently disabled.
Withholding vs final tax: why your fund took 22%
A common scare story: “my fund withheld 22% on my lump sum but I’m 59 — where’s my low rate cap?” Funds withhold using ATO PAYG tables (17%/22%) that don’t fully account for your unused low rate cap. The cap’s nil rate is reconciled at tax time via the lump sum tax offset — you’ll get a refund if too much was withheld. Withholding is not the final answer; keep the PAYG payment summary your fund sends within 14 days and check the assessment.
Division 296: the 2026-27 withdrawal window
Division 296 is law (royal assent 13 March 2026, effective 1 July 2026): an extra 15% personal tax on realised earnings attributable to super balances above $3 million — 25% total above $10 million, both thresholds CPI-indexed, unrealised gains not taxed. The first ATO assessments land in 2027-28. The withdrawal angle: for 2026-27 only, pulling your balance below $3 million before 30 June 2027 can reduce your Division 296 exposure — because from 1 July 2027, the higher of your start-of-year and end-of-year balance counts, so mid-year withdrawals stop dodging the measure. High-balance readers juggling Division 293 as well should model this before year-end.
Common mistakes
- Assuming the 22%/17% rules of thumb are final. They’re withholding tables; the low rate cap and lump sum tax offset settle the real number at tax time.
- Using stale caps. The low rate cap is $260,000 lifetime for 2026-27, not the $245,000 some guides still quote; the untaxed plan cap is $1,935,000.
- Trying to withdraw only the tax-free component. The proportioning rule splits every payment pro-rata — no cherry-picking.
- Thinking super is fully tax-free at 60. True for the taxed element; the untaxed element cops 15%.
- Confusing SIS dependants with tax dependants. Your fund paying your adult child doesn’t make the payment tax-free.
- Letting binding nominations lapse. They usually expire after three years.
- Forgetting Medicare. The 2% levy sits on top of every non-zero rate — 20% becomes 22%, 15% becomes 17%.
- Withdrawing before understanding the income-stream ratio lock. Starting a pension fixes your tax-free/taxable ratio at commencement.
Tips
- Track your lifetime low rate cap usage — ask your fund for your remaining balance before a big withdrawal between preservation age and 60.
- If you’re over 60 with a large taxable component and non-dependant beneficiaries, model a recontribution strategy within the $130,000 annual non-concessional cap.
- Time a single large withdrawal against your remaining low rate cap rather than splitting across years for no reason — the cap is lifetime, not annual.
- If you’re in an unfunded public-sector scheme, get a component breakdown from your fund before committing to a lump sum vs pension split.
- Model the numbers on the super calculator and the income tax calculator before locking in a withdrawal date.
FAQs
Can I withdraw my super at 55 in Australia?
Only if you were born before 1 July 1960 (preservation age 55) — or if you meet a condition of release such as terminal illness, severe financial hardship, compassionate grounds, or permanent incapacity. For everyone born after 30 June 1964, preservation age is 60.
How much tax do I pay on a super lump sum at 58 in 2026-27?
On the taxed element: nothing, up to your remaining lifetime low rate cap of $260,000. A $100,000 lump sum with an unused cap costs $0; a $400,000 lump sum costs $21,000 income tax plus $2,800 Medicare levy on the $140,000 above the cap.
Is super tax-free when I turn 60?
Mostly: the taxed element of lump sums and pensions is tax-free from 60. But the untaxed element (unfunded public-sector schemes) is still taxed at 15% up to $1,935,000 — plus the 2% Medicare levy — and the tax-free/taxable component split still matters for death benefits.
Do my adult children pay tax on my super death benefit?
Independent adult children are non-dependants for tax purposes: 17% on the taxed element (15% tax + 2% Medicare) and 32% on the untaxed element. A $300,000 taxable-component balance loses $51,000. Withdrawing it tax-free while you’re alive at 60+, or a recontribution strategy, avoids this.
Can I withdraw just the tax-free component of my super?
No. The proportioning rule splits every withdrawal in the same tax-free/taxable ratio as your account. For income streams, the ratio is locked at pension commencement.
Is it better to take super as a lump sum or an income stream before 60?
In the common case, the lump sum: it’s tax-free up to the $260,000 low rate cap, while an income stream is taxed at marginal rates minus a 15% offset (and the Medicare levy still applies). A $60,000 lump sum at 57 costs $0; the same amount as a pension costs about $1,200 in Medicare levy. Run both on the super calculator.
Conclusion
The 2026-27 withdrawal rules reward two things: timing and component management. Between preservation age and 60, the $260,000 lifetime low rate cap makes modest lump sums effectively tax-free — a fact most super guides bury. From 60, the taxed element is free to withdraw, but the untaxed element, the proportioning rule, and the death-benefit definition keep biting the unwary. The biggest single saving most families can make isn’t a market return at all: it’s a recontribution strategy that turns tens of thousands of taxable-component death-benefit tax into tax-free component before it’s too late.
