End of financial year checklist
The end of financial year is fast approaching, which means the biggest changes to super in a decade are almost upon us. Given the super changes are so complex and there’s not much time left, it may be tempting to give up and not do anything. But don’t forget, super is still attractive in terms of tax concessions. In fact, for many people, super is the most tax-effective structure to build your retirement nest egg with up to $1.6 million able to be held tax free at retirement and amounts above this facing a maximum tax rate on earnings of only 15%.
With limited business days remaining to take action, who needs to act and what needs to be done?
Savers wanting to make large non-concessional contributions – also known as personal after-tax contributions
As the contribution limits are reducing after 1 July 2017, only smaller amounts will be able to be moved into super after this date.
An additional complexity to the contribution rules is the introduction of a $1.6 million total super cap – which means if you have over $1.6 million, you won’t be able to make any non-concessional contributions after 1 July. For people in this category, the remaining days in June are your last opportunity to contribute personal money.
Tip: If you’re making a large transfer, consider how to protect against downside investment risk. This might mean initially allocating the new contribution into a cash investment option (SMSFs have access to government guaranteed cash accounts up to $250,000) within your super fund, and over the next 12 months gradually investing into the market.
- Retirees with over $1.6 million in pensions
If your total retirement pension balance is more than $1.6 million, you need to have a plan on how you will manage the excess amount. There are options – you don’t need to take the money out of super, you can choose to leave it in the super system but roll it back to the accumulation phase – but you do need to decide as soon as possible.
Tip: Many retirees are surprised to learn they must submit a written declaration to their super provider before 30 June setting out how they intend to comply – otherwise penalties could apply. Importantly, don’t get this confused with the paperwork for electing to take up CGT relief, which needs to be submitted after 30 June. If you’re still not sure – don’t put it off – get advice and avoid a nasty surprise from the ATO.
Not impacted by the changes?
If you’re one of the many people with less than $1.6 million in super, don’t let the super reforms overshadow other valuable end of financial year super concessions available.
For savers wanting to build their super or thinking about retiring
Making pre-tax contributions is a great way to save tax effectively and there are two ways to make these contributions. The most common is salary sacrificing some of your wages but that would need to have been set up during the year. Fortunately, the other method, which applies to self employed people, investors living off their own income, and some semi-retired people, can be used just before the end of the financial year by making a once-off contribution and claiming a tax deduction for it, subject to certain criteria.
If you’re 50 and over, the maximum contribution for this financial year is $35,000. Optimising this cap could create potential tax savings from $1,400 right up to $11,900 for people on the top marginal tax rate. These savings compound over time and can really add up inside your super account.
Overall, the new super rules mean it’s going to be a lot harder to get money into super and build your wealth using super from 1 July. So, if your goal is to beat the deadline and maximise the concessions available this financial year, think about the practicalities of what needs to be done – before the clock runs out.
This insight may contain general financial advice and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Any forward looking statements are based on current expectations at the time of writing. No assurance can be given that such expectations will prove to be correct.
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It’s important to have the knowledge you need to make an informed and confident decision about your retirement savings.