Retirement Investment Strategies – Superannuation Lump Sum Contributions

Wednesday, August 19, 2020

If you are approaching retirement, you are also approaching limits on how much you can contribute to your superannuation and thereby receive the inbuilt tax benefits, especially if you are approaching 65 years and will no longer be working. This can be helpful to keep in mind as part of your overall retirement investment strategy.

by Maher Digby Financial Planners Sunshine Coast 

If you are under 65 and you find yourself with an extra lump sum of money as many pre-retirees do - perhaps you are in receipt of an inheritance, or sold a valuable asset for example. You could choose to make a ‘personal contribution’ of all, or some of this money, into your superannuation. This is classed as ‘non-concessional’ contribution because you would already have paid tax on it. 

The advantages of these non-concessional contributions are: 

  • you do not pay 15% super contributions tax because you already paid tax on that money;
  • the tax rate on the total investment gains within your super is limited to 15% - usually lower than if you invest outside a superannuation environment; 
  • once you meet a condition of release and are over age 60 you can withdraw the money from your super tax free. 

Be mindful, there are annual caps on these types of contributions and these caps sometimes change. Currently the cap is $100,000 maximum for the 20/21 financial year.

If you are under 65yrs and you have less than $1.4 million in your super, you can  take advantage of special ‘bring forward arrangements’ which allow you to roll 3 years into one (bring forward the next 2 financial years if you have not exceeded your NCC cap in the previous two years). This could mean you have the option of contributing up to $300,000 in one go over a rolling 3 year period.

Over 65yrs the rules change:  Currently, once you are over 65 you cannot utilise the bring forward arrangement. In this age group you are restricted to the $100,000 non-concessional contribution each year.  

And if you are aged 67-74 you are required to meet a “work test” before making contributions (there are some rules and exemptions regarding the work test).

However, once you are over 75yrs non-concessional contributions are no longer allowed.

Bring forward non-concessional contribution caps are under review:  Common sense is prevailing and the age limits are currently under review by the Australian government with regard to the bring-forward arrangements.  Consideration is being given to extend this option to people aged 65 and 66 in alignment with the Centrelink Age Pension Age.

There are many complexities with tax contributions, and in this case non-concessional tax contributions, and they need to be viewed within your overall investment situation. It is wise to consult with your financial adviser to ensure you make the best decisions for your retirement planning and personal retirement investment strategies.   

Note:  if you exceed your non-concessional contributions cap in a financial year you then need to complete a tax return and may be required to pay additional tax.

For more Information and to learn about superannuation investment options contact Mark Digby at Maher Digby Securities Pty  Ltd - Financial Advisers – AFSL No. 230559 – Ph: 075441 1266.  This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such.  Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor