Time stands still for no one, especially if your eyes are on the retirement prize and yet you’re wondering, “how am I going to get there?”
In 2017, we saw some significant changes to the super rules which reinforced the government’s implied message that ‘you need to get started early and save regularly’ to get the full benefits you deserve from super.
Fortunately, some of these changes could also provide individuals that are much closer to retirement with some new opportunities to both optimise their use of super contribution caps and to top up their super. One change could even allow retiring Australians to contribute to super after retirement.
As you jump into a new financial year with your retirement date in mind, it is vital that you are aware of some of these changes and the retirement strategies that could be implemented to help kick-start your super savings this financial year.
Whilst these changes and strategies provide Australians with the opportunity to optimise their retirement planning, not every strategy will be appropriate to your circumstances and could carry implications and costs if implemented incorrectly.
The strategies that could be available to you from July 2018 include:
1. Employees can top-up super with tax deductible contributions
As an employed Australian under 65 (and for those still working to age 74), you can now fully utilise your concessional (tax deductible) superannuation cap of $25,000 by making a personal deductible contribution to super. This can be a useful way to top up your existing super guarantee (SG) contributions where there is no salary sacrifice arrangement in place. The top-up contribution could also provide you with a tax deduction when you complete your tax return.
When considering this type of contribution, it’s critical that you do not exceed the $25,000 concessional contribution cap by being aware of all contributions being made into super which could include premiums paid for insurances in super.
2. Spouse contributions
A great way to boost superannuation for your spouse whose income is less than $37,000 is to make a Spouse Contribution to their account. If you qualify, you could make a contribution of up to $3,000 on behalf of your spouse and claim an 18% tax offset on that contribution. This is a benefit of up to $540 for the person making the contribution.
If your spouse is marginally over the $37,000 limit, the offset is still available, however, it phases out once your spouse’s income reaches $40,000.
3. Carry forward unused concessional (tax deductible) super caps
If 30 June 2019 passes you by and you haven’t used up your entire concessional contributions cap, you may be able to make up (carry forward) the unused amount into the 2019/20 financial year. For example, if you only received super guarantee (SG) contributions into your super fund in the 2018/19 financial year of $10,000, this could leave you with an unused concessional super cap of $15,000. You potentially could, therefore, contribute up to $40,000 ($25,000 + $15,000) in the 2019/20 financial year, optimising the use of your concessional cap.
Plus, you could still receive the tax benefit on the entire $40,000 contribution.
From 1 July 2018, up to 5 years’ worth of contributions can be carried forward. However, this provision is only available to individuals with a total superannuation balance under $500,000 at the time of making the contribution.
4. Non-concessional (after-tax) super contributions
Each year until you turn 65, you generally have the opportunity to contribute up to $100,000 to superannuation from your personal savings or after-tax income. The contribution will boost the tax-free component and overall superannuation balance, which can have retirement and estate planning benefits. After-tax contributions can also have other benefits which include:
5. Potential co-contribution payment
If your income, or that of your spouse, is below $36,813, then you may qualify for a government co-contribution payment when you make an after-tax personal contribution to super.
The government will contribute 50c for every $1 after tax that is contributed to super, up to a maximum of $500. For example, if you qualify and contribute $750 to superannuation, the government could pay as much as $375 into your super fund. That’s the equivalent of an immediate 50% return on your contribution.
Access to this benefit is assessed based on your taxable income in the financial year. To qualify, your income must be below $36,813 for full benefit (or below $51,813 to receive a partial benefit), and you must derive at least 10% of your income from employment or business activities. Further, you must lodge a tax return in the year that you make your after-tax contribution.
6. Bring Forward Contributions
Although you generally have a non-concessional contribution cap of $100,000 each financial year, if you are under 65 the opportunity may exist to bring forward up to 2 additional years’ worth of contributions into a single year. This could enable you to make an after-tax contribution of up to $300,000 in the one year.
It is important to note that if your super balance was over $1.6m as of 1 July 2017 you will no longer be able to make non-concessional contributions to super. Further, if your balance was over $1.4m on 1 July 2017, you cannot use the full bring forward provision.
7. Downsizer super contributions
One of the more significant superannuation changes gives Australians over the age of 65 the opportunity to downsize their home for retirement and contribute up to $300,000 per person, from the sale proceeds to superannuation.
To take up this opportunity you will need to have owned your home for over 10 years, the sale must take place after 1 July 2018 and you must make the contribution within 90 days of receiving the sale proceeds.
An additional bonus is that the downsizer contribution does not count towards any of the existing contribution caps and it can be made regardless of your total superannuation balance.
Maximising the benefits for your retirement
Whilst the changes to super have reduced the annual contribution caps, there are now many ways in which working Australians and pre-retirees could potentially boost their super before retirement.
More than ever it is vital to get started early and to regularly build your retirement savings each year. However, if your retirement date is starting to come into focus, gaining access to some strategic planning to maximise your use of these benefits may be in your best interests to you achieve your retirement lifestyle goals.
For more information on your retirement planning
One of the best investments you can make this financial year could be some time with an RSM retirement specialist who can help to understand your financial circumstances and work with you to put together a plan that maximises the use of some of these strategies, and your wealth, for your retirement.
To kick-start your retirement planning this financial year, contact an RSM retirement specialist today.