If you were planning to make a large contribution into super before you retired, it may be more beneficial to consider doing so now, before the rules change on 1 July 2017.
Under the current rules you can contribute significantly more into super, which means the opportunity to make the biggest difference to your retirement savings is now. And depending on your combined super balance, this may be the very last opportunity you have to make an after-tax contribution.
Why top up before 1 July?
Up until 30 June 2017, if you’re under 65 years, you can contribute up to $540,000 after-tax money into super using the three-year bring forward rule. From 1 July, you will only be able to contribute up to $300,000 using the three-year bring forward rule, or $100,000 each year.
If you and your spouse are both younger than 65, together you may have one last opportunity to boost your super by up to $1,080,000.
If you are between 65 and 75 years and meet the work test, you are eligible to contribute up to $180,000 under the current rules. However, from 1 July you will only be able to contribute a maximum of $100,000 each year.
The $1.6 million catch – a limit on the amount you can contribute
From 1 July, if you have $1.6 million or more in all of your super accounts – both pension and accumulation – you will no longer be able to make after-tax (non-concessional) contributions to super.
Defined benefit accounts, both contributing and pension, will also count towards the $1.6 million limit. Read about changes affecting defined benefit pensions, including how much of your defined benefit pension counts towards the limit.
Ways to contribute more
Given that it’s easier to get more into super this financial year – and for some it’s the absolute last chance – many people are seeking advice on ways to source additional funds to channel into their super accounts including:
- selling assets such as shares or term deposits
- transferring an inheritance, redundancy or bonus
- selling a business or investment property
- drawing down on equity.
Good news for SMSF trustees is that you may be able to transfer your assets directly into your super fund without having to sell them, with the exception of residential property. This means you may not be forced to sell assets before you’re ready.
This type of transfer will create a capital gains event – so seek advice on how you might manage possible capital gains tax, including contribution reserving or concessional contributions, and ultimately whether transferring assets into your super is a suitable option for you.
When to consider borrowing money
If you can’t sell an asset before the 1 July deadline, you may wish to consider borrowing money to top up your super – which may be the case if you have a property sale that will not settle this financial year. There may even be a capital gains benefit to delaying the sale of one of your assets. Alternatively, all your assets may already be in super but you still want to take advantage of this last opportunity to boost your super by up to $540,000.
If you are thinking of borrowing to invest in super, you should seek expert advice. In particular, talk to an accountant and a financial advisor about the best timing, cash flow and tax implications because this approach may not be suited to everyone.
You should also ensure that any funds you redistribute to super are appropriately invested. Seek advice to formulate an investment strategy that manages the heightened risks of borrowing as well as personal risk tolerance.
Read about your options for taking control of your super and other opportunities to consider before 1 July.