Q: If you turn 65 and retire after 1 July 2009, can you still make the $450,000 bring-forward non-concessional contribution as long as it’s before June 30th 2010? Or do you have to satisfy the work test to do so?
Trish’s response: For the benefit of other readers, I’ll first explain the contribution rule that you refer to in your question. The annual non-concessional (after-tax) contributions cap is $150,000 (for the 2009/10 year), although Australians under the age of 65 have the opportunity to bring forward two years’ worth of non-concessional contributions.
The bring-forward rule means that it is possible to make up to $450,000 (for 2009/10 year) in non-concessional contributions in a single financial year, or, say, $300,000 in the first year and the balance of $150,000 over the following two years. Once you contribute more than $150,000 in a financial year, you automatically trigger the bring-forward rules for the following two years.
If you’re aged 65 or over, however, the bring-forward rule is not available. The maximum an individual aged 65 or over can contribute is $150,000 (for the 2009/10 year) in a single financial year, and they must also satisfy a work test. If a person is aged 65 years or over and exceeds the $150,000 cap, then the excess contributions are subject to a whopping 46.5% penalty tax.
So, your particular question relates to the situation where an individual turns 65 during a financial year. Are they still eligible to take advantage of the bring-forward rule?
My understanding of the bring-forward rule is that, provided an individual is under the age of 65 on 1 July of a financial year, then they can take advantage of the bring-forward rule during that financial year. You can confirm this with the ATO, or your accountant, or your adviser.
Now, the remaining question is: Even though a person is under the age of 65 on 1 July, what if they make the contribution after the age of 65 during the financial year? Does that then mean they must satisfy the work test, even though they are eligible for the bring-forward rule?
If an individual is aged 63 or 64 and triggers the bring-forward rules, then they don’t have to satisfy the work test for the remaining years of the bring-forward. If they have turned 65, and then trigger the bring-forward rule, as explained in the previous paragraph, then my understanding is that they must meet the work test before making the super contributions. I believe this is an unintended consequence of the legislation because the bring-forward rules were designed so that a work test wasn’t necessary but this one seems to have fallen through the legislative gap. In any case, I suggest you confirm this view with the ATO.
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Hello and thank you for answering my question ,Trish! I have further clarified that even if the bring fwd rule is triggered and the lcient then turns 65, not only do they need to satify the work test, they can only make a max of $150k in each consecutive contribution of the $450k cap balance, so they will have to do it over two or three different days as the rule says that the max an over 65 can contribute in any one transaction is $150k.