Increasing number of Australians are having to withdraw funds from their superannuation early for medical purposes

But there are warnings about the hidden tax trap and the impact on your retirement.

It was the week of Christmas in 2020 when Rose Charles’ life changed forever.

“We’ve certainly seen an increase over the last 12 months, it’s about a ten per cent increase,” Aware Super general manager Peter Hogg said.

The big catch, as Charles discovered, is that you have to pay tax.

Because super is taxed favourably going in, if you pull it out before you turn 60, you have to pay the tax you skipped.

That can be up to up to 22 per cent, on top of the 15 per cent paid on your contributions on the way in to your fund.

“So the government got a fair chunk,” Charles said.

You can get a refund at the end of the financial year, if your marginal tax rate is less than 37 per cent.

The strategy comes with a warning, to think hard about sacrificing future retirement earnings, only if it’s absolutely necessary. 

Mary Delahunty, the chief executive of ASFA, expressed that the current rate is high for individuals with urgent needs, suggesting that there might be a more effective approach to address this issue.