Additional ways to contribute to super (when you’ve reached your cap)

A lot of people I speak to tell me that they are ‘maxing’ out their super so don’t really know what else they should be doing.

Superannuation is an extremely tax efficient way of investing so naturally there are limits on how much you can put in and receive the tax benefits.

But my first step in preparing any financial plan is to work out whether you are really maxing out your super and whether there are other options for contribution. I’ll address these in this blog.

Concessional Contributions (Before-Tax Contributions)

When people tell me they are maxing out their super contributions, they are usually referring to the concessional contribution cap of $30k (please note this is increasing in the 26/27 tax year).

This is the amount you can contribute to superannuation inclusive of your employer contributions and receive an immediate tax deduction (subject to age limits).

For high income earners, a lot of the time their 12% employer contributions get them pretty close to this cap and a little bit of salary sacrifice can get them right on it.

But is there a way to get more in?

Catch Up Concessional Contributions

The first step if you want to get additional money into super is to consider if you have the ability to make catch up concessional contributions.

Basically, if your super balance was less than $500k at 30 June of the previous year, you have the ability to carry forward any unused concessional contribution caps from up to the previous five financial years.

So, if you haven’t been using your concessional contribution cap every year, you may have the ability to use some of those missed amounts.

This is particularly beneficial if you’ve had a one off high income year such as the year you’ve sold an investment property (and incurred a capital gain).

Non-Concessional Contributions (After-Tax Contributions)

Whilst a lot of people seem to be aware of the concessional contribution cap, it’s not common knowledge that you also have the ability to make ‘non-concessional contributions’.

A ‘non-concessional contribution’ is a contribution from your after-tax money i.e. you don’t receive an immediate tax benefit for contributing it.

The benefit of a non-concessional contribution is that it gets invested in a tax efficient environment allowing it to grow quicker without so much tax coming out it.

You can contribute up to $120k per year meaning when you add it to your concessional contributions, this allows for $150k total into super each year (please note: this is changing from the 26/27 tax year).

Assuming you have a partner, this means most couples can get $300k a year into super each year which largely solves a lot of contribution problems.

Bring Forward Non-Concessional Contributions

Another option for getting more money into super is to use the Bring Forward Non-Concessional Contribution rules.

This essentially allows you to bring-forward the next 2 years of non-concessional contribution cap to make a large contribution in the current financial year. This means instead of being able to make a maximum $120k contribution, you can contribute up to $360k.

By doing this, you bring forward the next 2 financial years contributions and can only contribute up to the cap you would have been able to make (e.g. if you contribute $340k in year 1, you will have the ability to make up to a $20k contribution over the next 2 financial years).

This contribution is a bit tricky and has age and account value limits but is a useful tool if you are looking to get large amounts of money into super prior to retirement.

Downsizer Super Contributions

Another great option if you’ve recently sold your home to downsize, is the downsizer super contribution option.

If you are 55 or older, you may be able to contribute up to $300k into your super fund.

The benefit of this contribution is that it doesn’t count towards your concessional or non-concessional caps so can be added in addition.

In most cases, you may not need this given your non-concessional caps are relatively high but it does create another tool for getting money into super in the right circumstances.

There are a lot of conditions on this including that you need to have owned the home for 10 years or more, that you’ve never previously made a downsizer contribution and you make the contribution within 90 days of receiving the proceeds of sale.

Small Business Retirement Exemption

If you run a small business and sell it to fund your retirement, there are also options of contributing some of these funds to superannuation outside of your existing caps.

The rules on this are quite complex so I won’t go into a huge amount of detail. Please refer to your accountant for further information.

Summary

When it comes to superannuation, there are a lot of tips and tricks you can use in the years leading up to retirement which will put you in a great position to retire in a tax efficient way.

If you’re thinking about superannuation and retirement and want an expert to help guide you, then please drop an enquiry on our website. We work with clients all over Australia and would love to hear from you.