The over 55’s guide to super contributions for building your retirement nest egg

Many of us are living longer than we ever expected. We need our retirement nest egg to last longer. This is why understanding your super is an important part of the retirement planning process.

You need to be making contributions to your super fund. With so many different types available it can be overwhelming trying to decide which one is best for you.

In this article, we will discuss what types of contributions there are. As well as what you need to know about each type before choosing one.

What are super contributions?

A contribution to super is an amount either you or your employer contributes to your super fund. This can be done as a once off contribution or on a regular basis, for instance monthly.

Your super contribution will be preserved in your super fund until you meet a condition of release. For instance retired from the workforce.

What are the different types of superannuation contributions?

Contributions can be broken down into two components. Ones you claim a tax deduction for or pay less tax than you would if you received it as income. Or ones you have already paid tax on. For instance cash in your bank account or an inheritance.

Concessional contributions

Superannuation Guarantee (SG) – mandated government contributions your employer pays on your behalf. Paid directly to your super fund of choice. Currently set at 9.5% of your salary.

Salary Sacrifice – contributions you can elect to add to your super fund of choice pre-tax. You inform your employer how much you would like to add prior to receiving your take home pay.

Personal Deductible Contributions – different to your salary sacrifice contributions but have the same benefit. You can elect to pay into your super fund from after tax dollars. Usually from your bank account. You can claim a tax deduction for these type of contributions.

If you are making a personal deductible contribution. You’ll need to lodge an intent to claim form with your super fund prior to lodging your tax return.

Non-concessional contributions

Are contributions you make to your super fund with after tax dollars. For instance money you have sitting in your bank account or an inheritance you have received.

You will not receive a tax deduction for these contributions.

It is a great way of using the super system to build your retirement next egg.

How much tax do you pay on your super contributions?

Concessional contributions – on all superannuation guarantee, salary sacrifice and personal deductible contributions you will pay tax at the rate of 15%. However, if your total income is over $250,000 you will pay tax of 30% on all contributions.

Non-concessional contributions – there is no tax paid on non-concessional contributions.

How much can I contribute to super?

When making contributions to your super fund, you need to be aware of the limits. Exceeding these limits can lead to penalties and further tax being paid.

Concessional contributions – in FY21 you are limited to a total contribution limit of $25,000. From 1 July 2021, this will increase to $27,500.

Non-concessional contributions – in FY21 you are limited to $100,000 per year. From 1 July 2021, this will increase to $110,000 per year.

What is the maximum amount you can contribute to super?

Contributions for which you claim a tax deduction for (concessional contributions), you are limited to $25,000 for FY21.

If you are making a non-concessional contribution to your super fund you can take advantage of the bring forward rules.

You are able to bring forward up to three years of non-concessional contributions. For FY21, you are able to make a total contribution of $300,000 in one financial year.

However, you will not be able to make any further non-contributions for the next two financial years.

Is there a limit on how much I can have in my super fund?

Generally no. However, there are some very specific rules if you reach certain levels. You’ll limited to what contributions you can make.
For instance, if your super balance is $1.6m or more on the 30th June in the previous year. You are no longer able to make non-concessional contributions.
Another reason why you need to have a plan on how you are going to manage your super contributions before retirement.

What if I haven’t used all my concessional limits?

If you haven’t used your concessional limits in a financial year and your super fund balance is under $500,000, you are able to take advantage of catch up provisions.

For instance if your superannuation balance is under $500,000 and you didn’t take advantage of all your limit.

For example you have $10,000 left for FY20 and FY21, you can make a further contribution of $20,000 on top of what you have already contributed. And claim a tax-deduction for the full amount.

A great strategy for topping up your super fund prior to retirement if your super balance is less than $500,000.

Are there age limits to when you can contribute to super?

At the writing of this post, you can contribute to super up to the age of 67 without meeting the work test. Up to age 75 if meeting the work test.

Depending on the type of contribution, there can be varying age limits.

As with most things super related, they are continually changing and is something you will need to seek professional advice for.

What about co-contributions?

The government has an incentive for people under certain income levels to contribute to super and receive an extra benefit.

If your income or partner’s income is below $39,387 in FY21 and you add $1,000 to your super fund. The government will top up your super fund account by $500.

If your or your partner’s income is between $39,387 – $54,837 you’ll receive an amount on a tied scale.

What if I am downsizing my home?

Many retirees will at some stage downsize their home. As the kids fly from the nest, it’s likely your home will be bigger than what you need.

If you have owned your home for more than 10 years and you sell it. You are able to contribute an extra $300,000 each into super. Provided your home sold for more than then amount you contribute.

Those funds do not need to come from the house sale.

You need to make the contribution within 90 days of settlement and complete a downsizer form.

Downsizer contributions do not form part of your super contribution caps.

A nice way to add to your nest egg and pay less tax on investment earnings.

What about spouse splitting?

One of the most under utilised super benefits is spouse splitting.

You are able to split your concessional contributions with your partner.

For instance, you contribute $25,000 into your super fund through a combination of employer contributions and salary sacrifice contributions. You pay contributions tax off 15% ($3,750), leaving you with $21,250 after tax.

You are now able to transfer $21,250 to your partner’s super fund.

A great strategy for levelling up your super accounts and maximising your retirement nest egg. Especially so if one partner looks like they will exceed their super limits.

What are the benefits of making extra super contributions?

If you ignore all the hype and emotion around investing, that’s a topic for another day. If used correctly, you can grow your super into a nice nest egg tax effectively. One which will provide you with good lifestyle in retirement.

There are many tax benefits to be had by making extra contributions prior to retirement. And everyone loves paying less tax, right?

What do you need to keep in mind?

Rules and limits are constantly changing and you need to stay on top of them.

Start planning your super contributions early so you can grow your super quicker while paying less tax.

We find many are missing out on the full benefits the super system offers. To better understand how you can best use the super system to grow your nest egg, seek professional advice.

Like all things superannuation, these are tools in your tool bag to help you fund your best life.

ALSO READ: Your Retirement Pit Strategy! What to do 5 yrs Prior to Retirement?

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Glenn Doherty – CFP – Retirement Planning Specialist | Retirement Planning made simple for over 55 white collar professionals

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Advice Disclaimer: Any reference in this publication to the provision of advice refers to advice of a generic nature, and should not be taken as product or investment recommendations. Before any action is taken based on the information provided, independent financial advice from a licensed financial adviser should be sought. Financial Freedom Project Pty Ltd ATF GA & DC Doherty Family Trust Trading as Jigsaw Private Wealth is a Corporate Authorised Representative of Exelsuper Advice Pty Ltd. The information contained in this publication is of a factual nature only and is not intended to constitute financial product advice. Information is current as at April 2021. This is an online information blog. It does not imply an offering of securities.

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