A long-standing super strategy is getting renewed attention. According to data from the Class 2026 Annual Benchmark Report, reported by SMS Magazine on 21 September 2026, more SMSFs are using Withdrawal and recontribution strategies. The approach can change the tax make-up of a member's balance, which may matter most when super is eventually paid to adult children or other non-dependants. With new contribution caps applying from 1 July 2026, the mechanics are worth revisiting.

What the latest data shows

Class, which provides SMSF administration software, analysed funds on its platform. SMS Magazine reported that the share of funds recording non-concessional contributions rose from 17 per cent in 2022–23 to 19.3 per cent in 2024–25.

Over the same period, the share of funds recording drawdowns increased from 37.5 per cent to 43.3 per cent. At the member level, the share recording tax-free contributions rose from 12.5 per cent to 14.4 per cent, while the share recording drawdowns rose from 31 per cent to 36.4 per cent.

Among members using the strategy, average non-concessional contributions reportedly rose from $80,440 to $90,533, and average drawdowns from $108,256 to $189,787. The figures relate to funds administered on Class and may not represent the whole sector.

Class noted the withdrawals and contributions may not occur as matched pairs in the same year, but said the upward trends in both reflected growing use of the strategy.

Why Class says it appeals

The report's explanation centred on estate planning., Class described reducing death benefit tax as "a straightforward, quantifiable saving that advisers can model".

The data covers years up to 2024–25, before Division 296 commenced, and the article does not attribute the trend to that tax. Separately, Smarter SMSF's Tim Miller told SMS Magazine in August that recontribution may help some couples keep both members under the $3 million Division 296 threshold, though that is a different use of the strategy.

How the strategy works

In broad terms, a member who can access their super withdraws a lump sum and then contributes it back to super as a non-concessional, or after-tax, contribution.

The first step requires a condition of release. According to the ATO, these include turning 65, retiring after reaching preservation age, or ceasing employment at or after 60. Preservation age is 60 for people born from 1 July 1964.

For people aged 60 or over, the ATO says lump sums from the taxed element of a taxed fund are generally tax-free. That is why the withdrawal itself often carries little or no tax for eligible older members.

Super balances are made up of a tax-free component and a taxable component. The ATO explains that the tax-free component generally comes from non-concessional contributions, while the taxable component generally comes from concessional contributions, such as employer and salary sacrifice contributions.

When money is withdrawn, the ATO says the fund applies a proportioning rule, so each payment reflects the mix of components in the account. Recontributing the withdrawn amount as a non-concessional contribution adds to the tax-free component, which over time can shift the balance of the account.

The link to death benefit tax

The components matter most on death. According to the ATO, a lump sum death benefit paid to a non-dependant, such as an adult child who is not financially dependent, is taxed on the taxable component. The taxed element is taxed at a maximum of 15 per cent plus the Medicare levy. The tax-free component is not taxed.

Death benefits paid to dependants for tax purposes, including a spouse, a child under 18 or a person who was financially dependent on the deceased, are treated differently.

For example, consider a hypothetical member aged 66 whose $1.2 million accumulation balance consists entirely of a taxable component. If that member withdrew $390,000 and recontributed it as a non-concessional contribution, $390,000 of the account would become tax-free component.

If the full balance were later paid to an adult non-dependant child, the tax on that $390,000 at 15 per cent would have been $58,500, plus the Medicare levy. This simplified illustration ignores earnings, fees and later changes to the balance.

Contribution caps for 2026–27

The size of any recontribution is limited by caps, which changed on 1 July 2026. According to the ATO, the non-concessional contributions cap is $130,000 for 2026–27, up from $120,000 in 2025–26. These are after-tax contributions not claimed as deductions.

People under 75 may use the bring-forward arrangement. The ATO says members with a total super balance, or TSB, below $1.84 million at 30 June 2026 can contribute up to $390,000 over three years.

Those with a TSB from $1.84 million to less than $1.97 million can contribute up to $260,000 over two years. Between $1.97 million and less than $2.1 million, the cap is $130,000 with no bring-forward.

Where the TSB is $2.1 million or more, the non-concessional cap is nil. That figure matches the general transfer balance cap, which the ATO says is $2.1 million from 1 July 2026.

What trustees may want to consider

Several factors may affect whether the strategy is relevant, depending on individual circumstances. These include age, whether a condition of release has been met, TSB, contribution cap history, pension arrangements and who is expected to receive benefits.

Miller has also cautioned that blended families can complicate plans involving spouses, because one member may hold a larger balance deliberately to provide for children from an earlier relationship.

Exceeding a contribution cap can lead to additional tax consequences, and withdrawals from pension accounts may affect income streams.

The bottom line

According to Class data reported by SMS Magazine, withdrawal and recontribution strategies have become more common among SMSFs, with the appeal linked mainly to reducing death benefit tax for non-dependants. The strategy works by converting taxable component into tax-free component through non-concessional contributions, within the 2026–27 caps of $130,000 a year or up to $390,000 under bring-forward. Whether it is relevant will depend on individual circumstances.