Six super contribution tips for 65 and older
When it comes to the constantly changing superannuation environment, the last thing you want to miss out on an opportunity that you didn’t know existed or may coming up.
Whilst superannuation rules can be confusing, there are six opportunities where getting your head around the fine print will give you an advantage.
Contributions from 65
If you are 65 or 66, you may now top up your super without having to meet the work test (40 hours of gainful employment in 30 days) or test exemption (more on this later).
You can now make voluntary pre-tax concessional contributions and – provided your total superannuation balance (TSB) or the amount you’ve got I the super system did not exceed $1.6 million at 30 June 2020 – after tax non-concessional contributions.
This is great news if you are retired, work only one day a week or volunteer. From your 67th birthday up until 28-days after the end of the month in which you turn 75, you must still meet the work test or test exemption to make voluntary contributions.
If you haven’t triggered the non-concessional contribution bring-forward arrangements in the past two years and were under 65 at 1 July 202, you can contribute:
- up to $300,000 provided your TSB at 30 June 2020 was less than $1.4 million;
- up to $200,000 if it was $1.4 million to less than $1.5 million;
- otherwise the maximum is $100,000.
You cannot contribute if your TSB was $1.6 million or more.
Along with the increase in contribution age will be an extension of the non-concessional contribution bring-forward rule to people aged 65 and 66.
Unfortunately, the enabling legislation is stuck in Parliament and will not be law until this morning at the earliest – so keep an eye out if it may apply to you.
If it becomes law before 30 June 2021, it will mean that if you’re under 67 any time between 2020-21, you may be able to trigger the bring-forward rule, even if you haven’t worked.
It could give retiree couples aged 65 or 66 who sell their home and are eligible to make downsizer contributions the ability to contribute up to $1.25 million from the sale proceeds. Without this change, they may only be able to contribute up to $850,000 (2 x $25,000 + 2 x $100,000 + 2 x $300,000). This excludes any catch-up concessional contributions.
Note that the work test and age restriction don’t apply to downsizer contributions.
If you’re 65 or 66, you’re stuck with making non-concessional contributions of only $100,000 a year until the age to use the bring-forward rule increase.
A problem will arise if you do not meet the work test (or work text exemption) and turn 67 before it’s law. However, you could run the gauntlet and contribute more (i.e. up to $300,000) – anticipating that it will become law. But if it doesn’t, you’ll be hit with an excess non-concessional contribution determination from the ATO for any mount you contribute above $100,000.
Another dilemma for anyone eligible to use the bring-forward rule is whether you trigger it now in the face of the likely indexation of the concessional contribution cap to $27,500 from July 1.
With the non-concessional contribution cap being four times the concessional contribution cap, it could mean getting up to $330,000 into super if you leave it until 2021-22.
The age limit for spouse contributions has increase from 69 to 74, but the receiving spouse must meet the work test (or the work test exemption) from 67.
The opportunity to make spouse contributions for a further five years extends the period you may be able to claim a tax offset of up to $540 a year for a non-concessional contribution to your spouse’s super fund.
Work test exemption
If you’re 67 to 74, you may be able to contribute this financial year even if you’re not working.
The catch is that you must have had a TSB at 30 June 2020 of less than $300,000 and have met the work test in 2019-20. So, if you were fully retired last financial year, you won’t qualify.
Example: John turns 67 on 1 May 2021. He retired from all work on 1 May 2020. On 30 June 2020 his TSB was $295,000 and he’s never made an after-tax contribution.
Up until 30 April 2021, John can make concessional contributions of $25,000 and, assuming the increase in age to bring-forward rule becomes law, John can also make non-concessional contributions of up to $300,000.
If John doesn’t contribute before his 67th birthday (when the work test normally starts applying), he can do so from 1 May 2021, under the work test exemption.
Catch-up concessional contributions
If you didn’t utilise the full $25,000 concessional contribution cap in 2018-19 and/or 2019-20, then the unused amount(s) may now be contributed this financial year – giving you a bigger deduction and tax saving. However, the catch is that you must have had a TSB at 30 June 2020 or less than $500,000.
If for example in 2018-19 and 2019-20 your concessional contributions amounted to $20,000 and $22,000 respectively – this means you have an additional $8,000 ($5,000 + $3,000) to play with this financial year and you (or your employer) can contribute up to $33,000 provided your TSB at 30 June 2020 was less than $500,000.
If you don’t use unused cap amounts before 30 June 2020, all is not lost as you can carry them forward on a rolling five-year basis. So, the $5,000 and $3,000 can be carried forward up until 2023-24 and 2024-25 respectively, provided in the year you wish to apply them, your TSB at the previous June 30 was less than $500,000.
Carrying forward unused concessional contribution cap amount may be useful if you wish to make a large one-off contribution, for example, to minimise a capital gains tax liability.
Starting a super pension
If you’re contemplating starting a retirement phase pension (i.e. an account-based pension), be mindful that if the transfer balance cap is indexed from $1.6 million to $1.7 million from July 1, it could mean getting more into the tax-free retirement phase if you leave it until 2021-22.
– ATO. Difference between the general transfer balance cap and total superannuation balance. Read more
– ATO. Working out your concessional contributions cap. Read more
– Contribution tips for the year ahead. By Colin Lewis, Fitzpatricks Private Wealth.
– MLC. Total super balance. Super and retirement rules. Read more
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