The sprint finish: How to boost your super before retirement

In this guide

Transition to retirement
Carry-forward concessional contributions
Bring-forward non-concessional contributions
Downsizer contribution

Many of us don’t start to seriously plan for our retirement until it’s on the doorstep, but that doesn’t have to mean it’s too late.

These strategies can help with your sprint to the finish line, even if your current balance makes you want to shut your eyes and hide under the covers.

Don’t have any spare cash you could save or outside investments you can add to super? There’s something here for you too.

Transition to retirement

If you’re 60 or older and still in the workforce, combining a transition-to-retirement (TTR) pension with salary sacrifice or tax-deductible super contributions can give your super a welcome boost. What’s more, it doesn’t have to hit your hip pocket.

Once you turn 65 you can use the same strategy with a standard super pension, rather than a TTR.

This strategy works because the income you draw from super is tax free while the contributions you make are taxed at the low rate of 15%*.

The effect is that you can maintain the same take-home pay but have more going into super than you are withdrawing thanks to the tax concessions.

*An additional 15% tax applies if your income plus concessional super contributions exceed $250,000 for the year. If you’re a member of an untaxed (constitutionally protected) fund such as SuperSA, West State Super or Gold State Super the tax position for both contributions and withdrawals is different. It is important to seek specific financial advice.

Example: Jenny

Jenny is 60, earns $60,000 per year and has a super balance of $110,000. She doesn’t think a transition-to-retirement strategy can benefit her because of her relatively low balance and income.

However, Jenny can withdraw $11,000 tax free this year from a TTR pension and salary sacrifice $17,500 to super to maintain the same take-home pay.

The net amount added to her super is $14,875 after deduction of 15% contribution tax.

By using a transition-to-retirement strategy, Jenny has an extra $3,875 added to her super this year ($14,875 net contribution – $11,000 pension payment) while maintaining the same amount of income to live on.

The maximum that can be withdrawn from a transition-to-retirement pension is 10% of its balance each year. When using this strategy, you can top up your pension account annually with the savings that have been accumulating from your contributions to maximise the amount available to withdraw (if required).

This involves a bit of admin because you can’t add directly to a pension account, so you need to transfer the balance of the existing pension back into the account holding your contributions and use the combined balance to start a new pension. Some providers have a single form that covers the whole process.

Once you turn 65, a TTR pension can be converted into a retirement pension, even if you’re still working. A retirement pension has no maximum annual withdrawal and generates tax-free investment earnings, compared with up to 15% tax on earnings for a TTR.

Combining payments from a retirement pension with concessional contributions in the same way you would for a TTR can do even more to boost your balance because you can make the maximum concessional contribution that is tax effective and withdraw as much as you need to replace that income from the pension. Tax-free investment earnings also give you an extra push.

It is also important to be mindful of the concessional contribution cap, as salary sacrifice and personal tax-deductible contributions as well as your employer’s Super Guarantee payments all count towards your annual cap amount.

Learn more about transition to retirement.

View our webinar on benefits and strategies of transition to retirement pensions.

Carry-forward concessional contributions

If you haven’t been contributing up to the concessional contribution cap (currently $27,500) in recent years, you may have unused concessional cap space you can carry forward. The unused space, which can be drawn from the past five years, allows you to contribute more than the standard cap without incurring additional tax.

To be eligible, you must have had a total super balance below $500,000 on 30 June of the financial year prior to the year you’re using carry forward. You also need to have unused cap space from at least one of the five prior financial years.

Using carry forward to make additional contributions could save you tax and maximise your super in the run up to retirement.

Example: Using carry forward to move other assets into super tax effectively

Shimita plans to retire in five years and has not been focused on her super. She only recently learned that super generates tax-free investment returns and income after retirement and is now keen to maximise the amount she has in this environment.

After logging in to myGov, she finds that she has $85,000 in unused cap space that has accumulated over the past five years. Her current salary is $90,000 per year.

Shimita decides to sell some investments and contribute those savings to super instead. She receives $200,000 from the sale including a capital gain of $50,000. After the 50% discount for capital gains on assets held longer than 12 months, she must declare $25,000 of this as income.

Before super contributions, Shimita’s total taxable income is $115,000 ($90,000 salary + $25,000 capital gain). Her employer’s super contribution is $9,900 for the year. Shimita makes a tax-deductible personal contribution to super of $90,000, reducing her taxable income to $25,000.

Shimita’s total concessional super contribution is $99,900 but she will not exceed the contribution cap thanks to the carry forward rule. The first $27,500 of her contribution (including her employer’s $9,900 Super Guarantee payment) will use the cap for 2023–24 and the remaining $72,400 will be drawn from her $85,000 of available carry forward, leaving a remainder of $12,600 she can carry forward into future years.

By trading income tax for 15% super contribution tax, Shimita saves almost $16,000.

She still has $110,000 left over from the sale of her investment. This can be used to fund more tax-deductible contributions over the coming five years before retirement.

Carry forward can be useful for anyone eligible who can afford to contribute more than the $27,500 annual concessional cap in one year, not only those who have investments that can be sold.

Learn more about carry forward and tax-deductible super contributions.

Bring-forward non-concessional contributions

Not to be confused with the carry forward of concessional contributions – the bring-forward rule allows contributions above the standard annual non-concessional contributions cap to be made.

Non-concessional contributions are personal contributions you don’t claim a tax deduction for. They don’t immediately reduce your tax bill but can help you get other savings into the tax-advantaged super environment where your future investment earnings will be tax free in retirement phase.

The annual cap for non-concessional contributions is $110,000 in 2023–24 but bring forward allows you to contribute up to three times that ($330,000) in one year. The system works by giving you access to three years’ caps to use at any time in a three-year ‘bring-forward period’. Contributing more than the standard cap in one year automatically triggers the rule.

For example, if you are not already using the rule and contribute $200,000 in 2023–24, your bring-forward period will run from 1 July 2023 to 30 June 2026. During this period, you can contribute up to $330,000 in non-concessional amounts without exceeding the cap. As you have already contributed $200,000 you have $130,000 remaining that can be used during the time up to 30 June 2026.

Anyone under age 75 with a total super balance (TSB) below $1.68 million on 30 June 2023 has access to the three-year rule in 2023–24. The rules are modified if your balance is higher but below the $1.9 million cut off for making non-concessional contributions.

Example: Alan

Alan is 74 and plans to retire next year. He has significant savings outside super and he would like to get as much into the system as possible.

Alan makes a $110,000 non-concessional contribution in the current financial year, not yet triggering the bring-forward rule.

He will make a further contribution of three times the non-concessional cap next financial year, before he turns 75 and is prohibited from making further super contributions. By this time the cap may also have been increased with indexation, allowing him to contribute a larger amount.

This way he has used four years’ worth of cap in the short period just before retirement.

That Alan will be over 75 for much of his bring-forward period does not prevent him from using the rule, but he must ensure that all contributions are received by his super fund before he turns 75, or within 28 days after the end of the month he turns 75.

Learn more about the bring-forward rule.

Downsizer contribution

When you sell a home you have owned for 10 years or more and you’re 55 or older, you have an opportunity to make a downsizer contribution of up to $300,000 to super.

This special contribution does not count towards either contribution cap and can be made even if you are older than 75 or have more than the transfer balance cap (currently $1.9 million) in super.

If you and your spouse lived in the home together, you’re both eligible to contribute.

The downsizer contribution can be used only once (that is, you can’t contribute again if you sell another home later) and the total contributions from the sale of one property can’t exceed its sale price.

Despite the name, you don’t need to be downsizing or even purchasing a new home at all. It is the sale of a home owned longer than 10 years that triggers eligibility.

Example: Chun and Mei

Chun and Mei are 58 and have just sold their home of 20 years for $800,000. They both have very low super balances as they have often worked in their own business and neglected to contribute, but they have significant assets outside super.

Chun and Mei contribute $300,000 each to super as downsizer contributions. This leaves their full concessional and non-concessional caps untouched and permits them to contribute other assets to super using those caps – including the bring forward and concessional carry forward options.

The couple purchase a new home to retire to for $1 million using their remaining sale proceeds and other savings.

Although they did not downsize their home, Chun and Mei were able to take advantage of the downsizer contribution.

Learn more about downsizer contributions and combining them with non-concessional contributions.