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Invest Now, Lifestyle Later

To live the lifestyle you want in retirement, you may need to consider making additional contributions to your super, over and above the mandatory employer-paid 9.5% superannuation guarantee. A simple compound interest calculation shows that contributing an extra $500 a year (or $9.60 a week) would see an almost $100,000 boost to your retirement savings.

Concessional Contributions

Concessional contributions are before-tax contributions, which are taxed at a maximum flat rate of 15%. They include employer contributions, salary sacrifice contributions and personal deductible contributions. When making concessional contributions, you must ensure you do not exceed your annual concessional contribution limit which is $25,000 for the 2020/21 financial year.  

There are a couple of different ways you can make additional concessional contributions: salary sacrificing and personal deductible contributions.

In addition to your annual $25,000 concessional contribution limit you also have a $100,000 non-concessional contribution limit. Non-concessional contributions are also known as after-tax contributions, so they are taxed at your marginal tax rate (vs concessional contributions which incur only 15% tax).

From 1 July 2018, members can make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,000. Members can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

The 2020 income year is the first opportunity to take advantage of the catch-up concession, in respect of any unused concessional contributions cap amount from the 2019 income year.

For example, an eligible individual who earns $100,000 per annum and is paid 9.5% ($9,500) into super for 2019 and 2020. They would be able to top up $15,500 for 2019 and $15,500 for 2020.

Non-Concessional Contributions

The following benefits may be available to you if you make non concessional contributions:

  • $3,000 spouse contribution: If your spouse earns less than $37,000 p.a. you can transfer $3,000 into their super account and receive a tax rebate up to $540.
  • $500 government co-contribution: If you have an income of less than $54,837 in the 2020/21 financial year, your super account could receive up to $500 in the form of a co-contribution from the government. 
  • Downsizer contributions: If you have sold your home, that you have owned for 10 years, and you are over 65 years of age you may be able to contribute up to $300,000 to your super per person (i.e. $600,000 for a couple) within 90 days of the sale. This can provide access to the tax free pension phase of superannuation. 

Not everyone is eligible to make contributions so you will need to check your eligibility, which factors in age and work test. The maximum amount of superannuation that can be used to fund a tax-free pension in retirement is now restricted to a ‘transfer balance cap’ of $1.6 million per individual.

It is extremely important that before making any decisions regarding superannuation, you should always consult your financial advisor or accountant to make sure these decisions are right for your current circumstances.

Written for you by Amanda Bonavita

The information contained on this website and in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website and in this article are of a general nature only and are based on our interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

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