How much can I contribute to super?
They say there are two certainties in life, death and taxes. Australians get a third: ongoing changes to super.
It’s generally accepted that our super rules are many and very confusing - so we'll try to keep it simple.
Limits on tax concessions for super contributions
The amount of money that can be contributed to super and treated kindly is limited by contribution caps. Exceed these and tax penalties may apply.
When contributions are made they're sorted into categories so they can be assessed against the relevant cap and the relevant treatment applied.
The most common contribution caps are: 1) Concessional and 2) Non-concessional contributions.
1. Concessional contributions cap
Employer contributions (which include super guarantee and money you 'sacrifice' instead of including it in your take home pay) fall into this cap.
So do personal deductible contributions if a tax deduction is claimed. You can claim a deduction for personal super contributions made on or after 1 July 2017 if conditions are satisfied, like the age restrictions. The important point here is that it’s no longer the domain of the self-employed.
They're called concessional contributions because they're taxed at a maximum tax rate of 15% in the super fund. An additional tax on concessional contributions is applied if your relevant income plus concessional contributions are greater than $250,000. An extra 15% tax is payable on concessional contributions above this threshold.
If you’ve got more than one fund, all concessional contributions made to all of your funds are added together and counted towards the concessional cap.
The cap is currently $25,000 per person, regardless of age. And because nothing about super is simple, there’s a lot to consider including:
> Contribution catch up
With a total super balance of less than $500,000 on 30 June 2018, it may be possible to start to carry-forward an un-used concessional cap amount, and apply it from 1 July 2019. A key requirement is having an un-used concessional cap balance.
The first year you’ll be able to carry forward unused amounts is the 2019/2020 financial year. Unused amounts are available for a maximum of five years, and after this period will expire.
This increased flexibility will make it easier for people with interrupted work patterns to save for retirement, and benefit from the tax concessions to the same extent as those with regular income.
> Defined benefit funds
From 1 July 2017, concessional contributions to some types of defined benefit funds will count as concessional contributions (and caps might be exceeded). If you're in one and salary sacrifice, seek help from the fund about how these changes might impact you.
> Exceeding the concessional cap
Amounts above the cap are added to taxable income and taxed at personal tax rates (rather than the maximum super fund rate), but the money can stay in super. And if an interest penalty applies because the right amount of tax wasn't paid, it will generally not make sense to exceed the cap.
Why do it?
Aside from being a concessionally taxed vehicle in which to grow your retirement savings, making personal deductible contributions can be useful in offsetting any capital gains tax liabilities. Seek specialist advice for your situation.
2. Non-concessional contributions cap
These are contributions made from your savings and assets on which you have already paid tax (after tax contributions), plus contributions you've made to qualify for the Government co-contribution and spouse contributions.
If you have more than one fund, all non-concessional contributions made to all of your funds are added together and counted towards the non-concessional contributions cap.
This cap is currently $100,000 per person – exceptions apply. Consider for example:
> No cap left
The non-concessional cap will usually be zero for anyone with $1.6 million or more in super (this is called the general transfer balance cap). In this case, any non-concessional contributions made during that year will be excess non-concessional contributions. Exceed these and you may have to pay extra tax.
> Less than age 65
If under age 65, you might be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year. If eligible, when you make contributions greater than the annual $100,000 cap, you automatically gain access to future year caps. This is known as the ‘bring-forward’ option.
From 1 July 2017 the total superannuation balance at the end of the previous financial year will determine:
- the non-concessional contributions cap you can bring forward and
- whether you have a two-year or three-year bring-forward period.
Making a one-off non-concessional contribution of $300,000 is possible*, but restricts your ability to make any more of this type for the balance of the three year period. It's popular amongst people who want to get that much in before reaching age 65. And if you've got a partner, it might be useful to double up (ie $300,000 x 2 gets $600,000 into super).
* Depends on things like total super account balance, if the bring forward rule's been triggered and what's left to use, for example.
Remember you can’t access that money again until you trigger a condition of release like reaching age 65 for example, so think carefully about what's in your best interests and whether it's a better idea to make large non-concessional contributions within five years of being able to access your super.
It's at that stage we can assess how much more we should put into super in order to meet your desired retirement income and make those contributions. But also by keeping some money outside of super it gives you the option of an early retirement or using the funds before you can access your super.
But, if you'd like to attract the Government co-contribution for example, you'll need to consider things like what's the right amount for you to contribute (if you're eligible) and if this leaves you with enough money to meet regular expenses.
- ASIC Money Smart > Boosting super
- ATO > Getting your super started
- ATO > Growing your super
- ATO > Concessional contributions
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