Making super contributions after age 60: Even in retirement

Example: Contributing after 75

Ted is working and making salary-sacrifice contributions to super via his pay. He turns 75 during October and his last salary sacrifice is deducted from his pay during the month. Ted’s employer forwards it to the super fund on 20 November. As this is within 28 days after the end of October, the fund can accept Ted’s salary sacrifice.

If the employer had waited until after 28 November to send the contributions, the super fund would need to return Ted’s salary sacrifice via payroll because the contribution deadline had passed.

Delaying capital gains until after retirement

Stanley is 68 and will earn $150,000 from work this financial year. He has an investment property he wants to sell because he is no longer interested in the work involved in being a landlord and the rent is not generating enough income.

The sale price is expected to be $800,000 and includes a $300,000 capital gain. Stanley will need to declare $150,000 of this gain on his tax return (after applying the 50% discount for assets held for longer than 12 months), on top of his other taxable income for the year.

Stanley plans to use the bring-forward rule to contribute $360,000 from the sale to his super as a non-concessional contribution and then retire. He is already maximising his concessional contributions up to the cap by salary sacrificing to super from his job, so can’t use the sale proceeds to make a concessional contribution.

Before selling the property, Stanley seeks some advice. His financial planner recommends he delay selling until the next financial year to reduce the tax he will need to pay on the capital gain.

The strategy means that the $150,000 capital gain moves to a year when Stanley has no other taxable income because he has retired. As a result, it will be taxed at the lower rates that apply for income between $0 and $150,000 instead of the tax rates for income between $150,0000 and $300,000.

Although he will not be working during the financial year the transaction occurs, Stanley will still be eligible to make the $360,000 contribution he planned from the sale proceeds because there is no work test for personal non-concessional contributions.

Delaying the sale reduces tax on the capital gain by $27,917 and means Stanley will avoid a further $4,500 in Division 293 tax that would be charged on his concessional super contributions for his last year of work if he sold the property that year. Overall, he is $32,417 better off.

Reallocating investments to improve social security

Alfonso is 70 and married to Jalena who is 60. They are retired and own their home. Alfonso has a super pension with a balance of $600,000 while Jalena has $200,000 in her super pension. Jalena stopped work due to a back injury and is eligible for the Disability Support Pension while Alfonso receives the Age Pension.

Based on their current assessable assets, Alfonso and Jalena receive combined pensions of $19,400 per year from Centrelink.

To improve their position, Jalena transfers her super pension back into an accumulation account where the balance will not be assessed in Centrelink means tests until she is 67. Alfonso cashes a lump sum of $200,000 from his pension (tax free) and gives it to Jalena to contribute to her super as a non-concessional contribution.

These actions combined reduce the couple’s assessable assets by $400,000. They now receive full pensions of approximately $46,200 from Centrelink which is $26,800 per year more than before.

When Jalena turns 67, the balance of her accumulation account will become assessable and the couple’s Centrelink benefits will reduce. At this time, she will consider using her retirement savings to open a new super pension.

Using the bring-forward rule multiple times

Mohammed is 68 and retired. He has just inherited $1.5 million from his mother’s estate.

Mohammed currently has a small super balance. His goal for the future is to hold most of his assets, including his inheritance, in a super pension. Based on his age and work status, Mohammed can make personal non-concessional contributions and use the bring-forward rule until he turns 75.

To maximise the amount he can contribute to super, Mohammed’s adviser recommends he make the following non-concessional contributions:

• $120,000 (the current non-concessional cap) now – in the year he turns 68
• 3 x the non-concessional cap next financial year – when he will turn 69
• 3 x the non-concessional cap in the year he will turn 72
• 3 x the non-concessional cap in the year he will turn 75

The last contribution should be made either before Mohammed’s 75^th birthday or within 28 days of the end of the month he turns 75 at the latest, in line with the age limit for non-concessional contributions.

This method uses the bring-forward rule three times. The first contribution avoids triggering the rule because it is within the non-concessional cap. This ensures Mohammed can fit three bring-forward arrangements plus a further contribution of the entire annual cap into the years before he reaches the age limit.

Based on the current annual non-concessional cap, Mohammed’s plan will allow him to contribute $1.2 million to super before he turns 75. The actual total will be higher because the non-concessional cap will increase over the years.