Q. Help, I’m 76 and want to contribute more to my super, but I’ve been told I can’t!
This was the cry for help we received from Albert last week. He had just won $45,000 in a lottery and doesn’t want to spend it. Instead, he would like to put it into his super. A friend told him that once you turn 75 you can no longer make any contributions. Is this right?
Says James:
I think super is a terrific way to save for retirement. You start a job and your employer is legally obliged to contribute into your superannuation account – currently 11.5% of your ordinary time earnings and increasing to 12% on 1 July 2025. It’s a tax-effective environment, it compounds over your lifetime and there are even bigger tax advantages if you turn these savings into an income stream in retirement.
However many people who have already retired won’t have had the advantage of super all their lives. They are often playing catch-up. And getting money into super isn’t quite as simple once you have retired. But it’s not impossible if you understand the rules.
Because of the tax advantages of super there are limits to how much you can put in both when you are working and also after you have retired. And the rules change as you pass different age milestones, so here’s a brief summary of the main rules:
Lump sum after tax contributions.
You can make up to $120,000 each year in after-tax contributions to your super. This could come from your bank account, the proceeds of the sale of your home, an inheritance or perhaps from other investments. If you are aged under 75 you are eligible to make a non-concessional contribution even if you are not working. Depending on your superannuation fund they may also be able to accept contributions until 28 days after the end of the month you turned 75, however, it’s best not to leave your contribution until the last minute.
If, like Albert, you are over 75 the only contributions possible are those made by your employer as the Super Guarantee and any Downsizer contributions if you’ve sold your home.
Bring forward contributions.
This allows you to ‘bring forward’ up to three years’ worth of those after-tax contributions outlined above (i.e. $120,000 per annum) and make a single $360,000 dollar contribution. That would make a really big boost to your super. You can do this right up to age 75. There are some tricky rules around this if you inadvertently exceed one year’s limit so it’s worth talking to an adviser to get some guidance here.
Now these are some pretty big numbers and most people don’t have the capacity to boost their super by those amounts which brings us to …
The Downsizer Contribution.
For many Australians their home is their most valuable asset. And many look to sell their home when they finish work, separate, or the kids leave home. If you do choose to sell your home you could take advantage of what is known as the Downsizer Contribution. This is where you can take up to $300,000 of the proceeds (for couples this is $300,000 each) from the sale of your home and put this into super. Some conditions apply, such as having to make the contribution within 90 days of settlement. This is available to people over age 55 and the even better news is that there is no upper age limit. Selling your home might also give you enough money to use the bring forward provisions as well as the downsizer. In theory someone could make a downsizer contribution of $300,000 and an after-tax contribution of $330,000 totalling $630,000. That’s a lot of money but some people downsizing from valuable homes might be in a position to do that. They will need to stay under the total super balance limit of $1.9 million though
So what are the other main ways to boost your super?
Salary sacrifice contributions.
If you are still working, and under age 75, your employer will be making contributions to your super account. You can top these up with salary sacrifice contributions (pre-tax contributions). These contributions will only be taxed at 15% if your total of employer and salary sacrifice contributions stay below the current concessional limit of $30,000. You can also claim a tax deduction on some after-tax contributions if you haven’t exceeded your pre-tax contribution limit.
Carry forward contributions.
This is another catch up contribution that helps enable people to boost their super and potentially reduce tax. Often people late in their career who have paid off their mortgage, or are seeking to offset a Capital Gains Tax(CGT) bill, find themselves in a position to contribute a lot more to super. This provision enables someone with less than $500,000 in super as at 30 June of the previous financial year to carry forward previous years unused pre-tax contributions – up to five previous years – and use them in later years. In your MyGov account, under ‘superannuation’ you will see the amount of ‘unused pre-tax contributions’ you have available to use.
Now many of the contribution amounts outlined above may look very high but they do highlight that it is possible, in certain circumstances, to make a really significant boost to your super in later life. You could have sold your home, or perhaps other investments. You might have received an inheritance or are just enjoying the cash flow advantages of reduced expenditure on kids and the mortgage.
So let’s look at an example of how this would work for four members of the local bowls club, Terri, Bao, Frank and Maria. They all want to know how to get more money into super. What options are available to each of them?
Terri
Terri is 60, still working, rents her home and has $150,000 in super which is well below the total super balance cap of $1.9m. This means all of the options outlined above are still available to her, except for the Downsizer Contribution.
Bao
Bao is 65 and no longer working. He owns his own home and has $250,000 in super. As he is no longer working he won’t receive contributions from an employer and he won’t be able to make salary sacrifice contributions. As a homeowner he could sell his home and make a Downsizer Contribution.
Frank
Frank is 68, a homeowner and no longer working. He has $2 million in super. He can make Downsizer Contributions however any further after-tax contributions will exceed his cap and he will most likely receive an excess contributions tax assessment from the ATO. He can withdraw those contributions or else face paying the highest tax rate on those contributions. It’s worth checking carefully before making additional contributions once you exceed the cap. Our advisers can help explain the rules. If he returned to work he could still receive employer contributions and make salary sacrifice contributions.
Maria
super. The only contribution option available to Maria, even if she returned to work, is the downsizer option.
We can’t address everything here, but will write more about these rules in the future. In the meantime our advisers can talk to you about what your retirement forecast could look like and the options available to you to boost or at least get your super working for you.
Have you done anything later in life to give your super a boost?
If not, do you think you could take advantage of any of these ways to boost your super?
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.
