Transition to Retirement & Income Swap Strategy

By Ryan Humphries (AR 130 9222)

If you're over 60 and still working, you may be sending more money to the ATO than you actually need to.

The income swap strategy is a legal, ATO-recognised approach that lets you redirect some of that tax into your own super instead. You don't work less, and your take-home pay doesn't drop. The only thing that changes is where your money goes.

Here's how it works.

What Is the Income Swap Strategy?

The income swap strategy involves making additional concessional contributions to your super while simultaneously drawing an income from a Transition to Retirement (TTR) account.

Concessional contributions are taxed at just 15% inside super, regardless of your personal marginal tax rate. If you're earning above $45,000, you're already paying 30% or more on that income. The strategy uses that gap to create a tax saving, and keeps that saving inside your super where it continues to grow.

Your take-home pay stays the same because the TTR drawdown makes up the difference. The net result is that money that would have gone to the ATO ends up in your retirement savings instead.

What Is a Transition to Retirement Account?

A Transition to Retirement account, or TTR, is a type of super pension account that allows you to access some of your super while you're still working, provided you've reached your preservation age.

Your preservation age is between 55 and 60, depending on when you were born. However, as explained below, the income swap strategy works best for those aged 60 and over.

A TTR account is not the same as full access to your super. For unrestricted access, you need to meet a full condition of release, such as permanently retiring. A TTR account allows you to withdraw between 4% and 10% of your account balance each year, with the minimum rising to 5% once you reach the 65 to 74 age bracket.

You cannot make contributions directly into a TTR account. Your regular super contributions and existing insurance cover must remain in your accumulation account, with the TTR account sitting alongside it.

Originally, TTR accounts were designed to help people ease into retirement by supplementing lost income from reduced hours. But there is a second, less widely understood use of the TTR, which is the income swap strategy.

Who Is Eligible?

The income swap strategy is generally suited to people aged between 60 and 74 who are still working and able to make additional concessional contributions to super.

Anyone under 75 can make concessional contributions to super. However, if you're over 67, you must satisfy the work test or a work test exemption before you can claim those contributions as a tax deduction.

For the strategy to generate meaningful tax savings, you need to be paying more than 15% on your income. The 30% bracket, which applies to income above $45,000 in the 2025-26 financial year, is where the strategy starts to create a real gap. The higher your marginal rate, the greater the potential saving.

You also need to have room left in your concessional contributions cap. The cap is $30,000 for the 2025-26 financial year, and your employer's Super Guarantee contributions count toward it. If your employer is contributing the current SG rate of 12% on your behalf, that amount reduces what you can still add yourself.

It's also worth noting the carry-forward rule. If your total super balance was under $500,000 at 30 June of the previous financial year, you may be able to use unused concessional contribution cap amounts from up to five previous financial years. This can significantly increase the amount you're able to contribute and the tax saving you can generate.

How the Income Swap Strategy Works: A Practical Example

To keep this clear, here's how the strategy plays out for one person.

John is 60 years old with a salary of $100,000. His marginal tax rate is 30%, plus the 2% Medicare levy, giving him an effective rate of 32% on each additional dollar earned. We'll assume he has no other deductions or offsets, that he has private health cover (so no Medicare Levy Surcharge applies), and that his employer pays the current SG rate of 12%, which means $12,000 is contributed to his super on top of his salary each year.

John has two options.

Option one: he does nothing. His taxable income is $100,000. He pays approximately $22,788 in income tax, plus $2,000 in Medicare levy, leaving him with take-home pay of $77,212 per year. His $12,000 in employer super contributions is taxed at 15% inside super, leaving $10,200 going into his account after $1,800 in contributions tax. Combined with his income tax, John pays a total of $24,588 in tax across all forms.

Option two: John implements the income swap strategy. He sets up a salary sacrifice agreement with his employer for $18,000 per year, his remaining concessional contribution cap after accounting for the $12,000 in employer SG contributions. He also opens a TTR account and transfers a portion of his super into it to enable withdrawals.

By salary sacrificing $18,000, John reduces his taxable income from $100,000 to $82,000. His income tax on $82,000 is approximately $15,388, plus $1,640 in Medicare levy, giving him take-home pay of $64,972. His total concessional contributions are now $30,000, taxed at 15% inside super, leaving $25,500 in net contributions after contributions tax. Total tax paid across all forms is approximately $21,528.

That's a tax saving of approximately $3,060 compared to Option one.

John's take-home pay has dropped by $12,240 per year at this point. This is where the TTR drawdown comes in. Because John is over 60, his TTR pension payments are completely tax-free. He sets up a pension payment of approximately $12,240 per year from his TTR account, which tops his take-home pay back up to $77,212, exactly where it was before. The $3,060 in tax savings is now sitting inside his super, growing for retirement.

To generate the $12,240 annual drawdown, John needs to keep the right amount in his TTR account. Drawing at around 7% gives him a reasonable buffer if his balance fluctuates, which means he would transfer around $174,857 into his TTR account. If he has a smaller balance available, the minimum required to meet the drawdown at the maximum 10% withdrawal rate is $122,400.

What's right for you will depend on your individual circumstances, so it's worth getting specific advice before setting this up.

Income Swap Strategy comparison table — John Doe Option 1 vs Option 2

The Carry-Forward Scenario

If John has unused concessional contribution cap amounts from previous years and a total super balance under $500,000, he may be able to contribute significantly more than the standard $30,000 cap in a single year using the carry-forward rule.

For example, if John has $25,000 in unused carry-forward amounts, his available concessional contribution cap for the year could increase to $55,000. The tax saving from contributing at that level would be substantially higher, while his take-home pay would remain unchanged, with the TTR drawdown adjusted accordingly.

This is one of the less commonly used features of the super system, and for eligible individuals approaching retirement, it can meaningfully boost their final balance without requiring any extra cash outlay.

Income Swap Strategy with carry-forward contributions example

The Main Steps

The strategy involves three core steps, though the order can be adjusted depending on your timing and personal situation.

The first step is making the additional concessional contribution, either through a salary sacrifice arrangement with your employer or as a personal after-tax contribution that you later claim as a tax deduction. Make sure your total concessional contributions for the year, including your employer's SG payments, do not exceed the cap for the relevant financial year.

The second step is opening a TTR account. You'll need to determine how much to transfer before you start, since the amount you need in the account depends on your target annual drawdown. Your accumulation account must stay open to receive contributions and hold any existing insurance.

The third step is setting up your pension payments from the TTR account to supplement your reduced take-home pay. If you're over 60, those payments are tax-free and top you back up to your original income level.

If you're implementing this strategy towards the end of a financial year and don't have the funds available to salary sacrifice, it's possible to make a personal contribution first, withdraw from your TTR account to replace those funds, and then claim the contribution as a tax deduction in your tax return. The tax benefit arrives at the end of the year in this case rather than in each pay period.

What This Means in Practice

This strategy works best when it's set up with the right numbers from the start and reviewed regularly.

Your TTR account balance will shift over time as investment returns fluctuate and payments are made. Checking the setup at least once a year ensures your drawdown remains within the 4% to 10% requirements, and that your contribution levels still reflect your current income and employer contributions.

If your employer increases your pay, or the SG rate changes, those adjustments affect how much room you have left in your concessional cap and how much you need to draw from the TTR account. Keeping those numbers accurate is what keeps the strategy working.

There are also a few other things worth knowing. Some super fund providers allow in-specie transfers when setting up a TTR account, meaning your investments don't need to be sold to cash before the transfer. This keeps you invested in the market during the transfer and avoids triggering any capital gains tax on the way through. Not all funds offer this, so it's worth checking with your provider.

If you're considering using carry-forward contributions to offset a large capital gain in the future, such as from the sale of an investment property, it may be worth modelling both scenarios to see whether the income swap strategy is still the more effective use of those carry-forward amounts in your particular year.  

The Assumption That Catches People Out

A lot of Australians assume the income swap strategy is complicated, risky, or only for people with very large super balances.

None of those things are true.

The strategy is legal, well-established, and used by financial advisers across Australia for clients in the right age and income range. The minimum TTR balance required is often lower than people expect, and the numbers aren't complicated once they're set up correctly.

What tends to catch people out is leaving it too long. The strategy requires you to still be working. Once you're fully retired, the TTR window closes. Every year you delay is a year the tax saving doesn't flow into your super.

If you're over 60, still working, and paying tax at 30% or above, it's worth finding out whether this strategy applies to your situation.

UPDATED: MAY 2026

This content is general in nature and does not constitute personal financial advice. Individual circumstances vary. The figures used in this article, including contribution caps, tax rates, and SG rates, are based on the 2025-26 financial year and are subject to change. Consider speaking with a licensed financial adviser before making any decisions about your superannuation or retirement strategy.