In this guide
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.
The maximum that can be withdrawn from a transition-to-retirement pension is 10% of its balance each year.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.
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.
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.
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.
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.
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