Glad you asked! The answer for many people is absolutely. In fact, it could be more with employer or personal concessional contributions.
The rules on super contributions present some interesting opportunities particularly for those approaching retirement. As of 1 July 2024, the non-concessional contribution (NCC) cap has increased and there are more opportunities for those eligible to utilise the bring-forward rule and the downsizer contribution. This can significantly enhance the amount they can put into their super and maximise the tax-advantaged environment of super.
So let’s break down how you can leverage these strategies to supercharge your retirement savings.
- Non-concessional contribution (NCC) cap
Non-concessional contributions are personal contributions you make into your super fund from after-tax income. No tax deduction is claimed for these contributions. As of 1 July 2024, the NCC cap has been increased to $120,000 per financial year, up from $110,000 last financial year. If you have a total superannuation balance of less than $1.9 million at 30 June 2024, you may be able to take advantage of this cap.
One benefit of NCCs is that these contributions are not subject to the same tax rates that apply to concessional contributions. They also allow you to move money into the low-tax environment of super, where earnings are taxed at just 15% or 0% in the pension phase.
- Bring-forward rule
The bring-forward rule allows eligible individuals under the age of 75 to contribute up to three years’ worth of NCCs in one financial year. So instead of being limited to $120,000 annually, you may be eligible to contribute up to $360,000 in a single financial year.
To take full advantage, you could contribute $120,000 in the current financial year (2024/25), and then contribute up to $360,000 from 1 July 2025 by triggering the bring-forward rule. This means, in total, you can move $480,000 into super over two financial years, if your super balance allows for it. Those with super balances around or above $1.66m should be careful and seek advice.
- Downsizer contribution
For homeowners aged 55 and older, the downsizer contribution is a relatively recent initiative aimed at freeing up housing for younger families while also providing retirees with an opportunity to boost their super. If you sell your primary residence (which you must have held for at least 10 years), you can contribute up to $300,000 from the sale proceeds into your superannuation fund.
If you are part of a couple, each member of the couple can contribute up to $300,000, meaning a potential $600,000 boost to your combined super balances.
- Contribute up to $1.56 million as a couple
If you’re a couple who wants to maximise your super contributions by downsizing, here’s how you can get as much as $1.56 million into super over a relatively short period of time:
- You each contribute $120,000 as an NCC this financial year (2024/25) – $240,000
- From 1 July 2025, you both use the bring-forward rule to contribute $360,000 or $720,000
- Once you’ve sold your primary residence, you each make a downsizer contribution of $300,000, bringing in an additional $600,000 as a couple.
By utilising these strategies, you can significantly boost your retirement savings and take full advantage of the superannuation system’s tax concessions. This is particularly attractive as earnings in super are often taxed at a lower rate compared to personal investments held outside of super.
- Eligibility and conditions for downsizer contributions
Before rushing to sell your home and maximise your super, it’s important to be aware of the eligibility requirements for the downsizer contribution. You must be:
- Aged 55 or older at the time of making the contribution.
- The sale must be for a home that you or your spouse owned for at least 10 years.
- The property must be your primary residence, which means it qualifies for the capital gains tax (CGT) main residence exemption, either in part or in full.
- You must make the downsizer contribution within 90 days of receiving the sale proceeds (settlement date), although there are some allowances for extensions.
You don’t need to meet the work test and there’s no maximum super balance limit to make a downsizer contribution. The funds you contribute under the downsizer scheme won’t count towards your NCC cap but will count towards your transfer balance cap, which is currently $1.9 million. Please refer to the ATO’s website for further information.
- Beware of contribution limits and the Transfer Balance Cap
While the NCC and downsizer contributions offer a great way to boost your super balance, you should be aware of the total super balance limits, which could restrict your ability to make non-concessional contributions. See the ATO’s website for further information.
You should also be mindful of the transfer balance cap when it comes to starting a pension. As of 1 July 2024, the transfer balance cap is $1.9 million, which is the maximum amount you can transfer from your accumulation account to a tax-free pension account.
If your super balance is nearing this cap, you should seek financial advice to avoid penalties or restrictions on your contributions.
- Concessional Contributions
Lastly, it’s important to note that the downsizer and NCCs are distinct from concessional contributions. These are pre-tax contributions such as employer contributions and salary sacrifice arrangements or personal contributions for which you claim a tax deduction. You can continue to make eligible concessional contributions up to the annual cap of $30,000, and these won’t affect your ability to make an NCC or downsizer contribution.
- Conclusion
For those nearing retirement and thinking about downsizing, the opportunity to contribute such significant amounts into your super through a combination of NCCs and the downsizer contribution is a golden opportunity. If you’re a couple, moving $1.56 million into superannuation in a short space of time could ensure you have more than enough to enjoy a comfortable retirement.
However, understanding contribution and pension caps can be complex and we recommend seeking professional advice to ensure you maximise the benefits without falling into any traps.
Keep Wealth Partners Pty Ltd (AFSL 494858)
This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from a financial planner who can consider if the strategies and products are right for you.
