KiwiSaver and Income Tax

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Forums › Finance and wealth management › KiwiSaver and Income Tax

alisam

829 posts

Ultimate Geek

#257359 28-Sep-2019 08:04

My expectation is that when I retire I will be able to withdraw all the money and say put it in the bank, earning some interest.

Bank interest is always taxable.

My understanding is that I have been paying tax on my KiwiSaver over the life of my membership.

When I have to fill in an Income Tax Return, I assume I have to declare the proceeds from KiwiSaver as income.

What is the IRD going to tax me on. The Bank Interest or the KiwiSaver income (or both).

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wellygary

8312 posts

Uber Geek

#2326256 28-Sep-2019 08:20

When I have to fill in an Income Tax Return, I assume I have to declare the proceeds from KiwiSaver as income.

What is the IRD going to tax me on. The Bank Interest or the KiwiSaver income (or both).

Your Kiwisaver provider and Bank both have your IRD number and should be deducting tax on your behalf, they then tell IRD how much tax you have paid.

All going well this should happen in the background and you will not have to account for it again.

PolicyGuy

1726 posts

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#2326268 28-Sep-2019 09:20

My expectation is that when I retire I will be able to withdraw all the money and say put it in the bank, earning some interest.

Why would you do that?
Your KiwiSaver fund manager is almost certainly giving you a much better return than a bank deposit would, in fact if they aren't then it's time to change your KiwiSaver provider.

I would think that the better strategy would be to keep your money in your KiwiSaver account, drawing it down as needed for living expenses, trips & holidays etc

In the current interest rate environment, putting your money in a bank is pretty much a mug's game :(

BTW I am not a Registered Financial Adviser, this is not Financial Advice, etc., etc.

Geektastic

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#2326274 28-Sep-2019 09:48

PolicyGuy:

My expectation is that when I retire I will be able to withdraw all the money and say put it in the bank, earning some interest.

Why would you do that?
Your KiwiSaver fund manager is almost certainly giving you a much better return than a bank deposit would, in fact if they aren't then it's time to change your KiwiSaver provider.

I would think that the better strategy would be to keep your money in your KiwiSaver account, drawing it down as needed for living expenses, trips & holidays etc

In the current interest rate environment, putting your money in a bank is pretty much a mug's game :(

BTW I am not a Registered Financial Adviser, this is not Financial Advice, etc., etc.

Yes. For the record, it isn't compulsory to withdraw your money from KS at retirement or to withdraw any particular amount or, indeed, to stop paying into it as far as I am aware. I am not a financial advisor etc etc.

JarrodM

969 posts

Ultimate Geek

#2326279 28-Sep-2019 09:58

Can I clarify, are you talking about returning the money you withdraw from KiwiSaver as income when you reach retirement age? If so this doesn’t need to be returned as income. If you take this out and put it in the bank, yes the interest will need to be returned.

Any income derived while the money is in your KiwiSaver will already be being taxed at your elected pir. It will not be taxed again when you withdraw it.

As others have said you do not need to withdraw the full KiwiSaver as soon as you turn 65.

sbiddle

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#2326282 28-Sep-2019 10:27

Why would you want to withdraw the money and put it in a bank? With rare exceptions such as after a crash some sort of managed fund will typically always deliver a far better return than a bank.

TinyTim

1042 posts

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#2326291 28-Sep-2019 10:51

Upon retirement you will probably certainly decide you want a low-risk fund, which will be invested 100% in bank deposits (or close to it) anyway. Kiwisavers are PIE funds which mean lower tax than standard term deposits, but higher fees than doing it yourself. You have to work out if those fees are worth it :-)

alisam

829 posts

Ultimate Geek

#2326529 29-Sep-2019 07:44

JarrodM: Can I clarify, are you talking about returning the money you withdraw from KiwiSaver as income when you reach retirement age? If so this doesn’t need to be returned as income. If you take this out and put it in the bank, yes the interest will need to be returned.

Any income derived while the money is in your KiwiSaver will already be being taxed at your elected pir. It will not be taxed again when you withdraw it.

As others have said you do not need to withdraw the full KiwiSaver as soon as you turn 65.

My post was never about whether I should withdraw the money and put it in the bank.

It was about what would happen about the money and the IRD, if I put it in the bank.

I think this post answers my question.

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antoniosk

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#2326548 29-Sep-2019 09:03

alisam:

My post was never about whether I should withdraw the money and put it in the bank.

It was about what would happen about the money and the IRD, if I put it in the bank.

I think this post answers my question.

Yep - as others have said, you're taxed all along the way with Kiwisaver (in fact nearly everything), with the notion being once you need it, no more tax to pay.

So if you spent a lifetime saving into Kiwisaver, it's been from your after-tax income. Any gains it's made on the way to your retirement have been taxed as well.

When you come out the other end and drawdown those funds, there is no more tax to pay.

But if you took say $100k out, and then put it into a new investment that earns income, the new earned income is liable for tax. doesn't matter where the source came from.

________

Antoniosk

BlinkyBill

1443 posts

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Inactive user

#2326675 29-Sep-2019 12:33

Banks withhold tax from deposit income as well. I suggest the OP:

- check he/she is on the correct PIR

- not in one of the default KiwiSaver scheme, but in one that suits their investment goals

When filling out an income tax return, one only needs to declare untaxed income, or income taxed at the wrong taxation rate.

mattwnz

20141 posts

Uber Geek

#2326703 29-Sep-2019 13:35

sbiddle:

Why would you want to withdraw the money and put it in a bank? With rare exceptions such as after a crash some sort of managed fund will typically always deliver a far better return than a bank.

Although crashes maybe rare, it all still comes down to timing, and the cycles. A lot of the experts say shares at the moment are way over valued, and a lot of people have taken their money out of the bank into shares, which appears to have pumped up the prices. The finance company sector crashing was also a rare event, but that didn't stop many losing a lot of their savings.