Q: I turned 69 recently, am retired and my sole income is New Zealand Super. Do I have to declare and pay tax on any lump sums I withdraw from my fund?
A: You can dip into your KiwiSaver once you are eligible for New Zealand superannuation - at 65 - as long as you have been in the scheme for at least five years. If you are 65 but haven't had your five-year KiwiSaver anniversary you'll need to hang on for a bit.
Money can be taken out in one lump sum or, if your KiwiSaver provider allows it, smaller amounts.
There is no obligation for you to withdraw the money once you reach eligibility and you can continue adding to it - either from your pay if you are still working or by putting in lump sums.
But if you are still working past the point when you are eligible to use your KiwiSaver funds and want to stop paying salary into it you'll need to fill out a non-deduction notice (KS 51). Deductions do not stop automatically.
What will stop after you reach eligibility age is the member tax credit payments from the Government. In your final year before reaching eligibility, any member tax credit payments you have earned will be worked out on a pro rata basis, depending on how much of the KiwiSaver year - July 1 to June 30 - you were under 65.
Your employer is also no longer required to pay into your fund, although some keep doing so as an employee perk.
The question is, how are those withdrawals taxed? Sean Donovan, a KiwiSaver specialist at Milford Asset Management, says your KiwiSaver is a Portfolio Investment Entity, or Pie Fund.
"As an investor in a Pie Fund you will pay tax on your units in the fund at the end of the financial year - March 31 - and any time you make a withdrawal."
You only pay tax on units you withdraw during the year and it is calculated and paid automatically by cancelling a proportionate number of units in your fund.
"The tax is full and final, provided you have given your fund manager your correct PIR rate [tax rate]," Donovan says.
You don't need to declare any withdrawals because you are already paying tax at the time of withdrawal. But it is important to give your provider the correct rate. If it is too low, you may still owe tax to the IRD, says Donovan.
To check which of the rates applies: - 0 per cent, 10.5 per cent, 17.5 per cent and 28 per cent - log into your KiwiSaver account online or calling your provider.
The IRD website also has a table that can help you work it out.