What you can do if you want to give your super a boost
There are many ways to save up for your retirement, and topping up your super may be one of them.
There are a number of potential options to top up your super, including:
- Salary sacrifice (before-tax) contributions – you can arrange with your employer to sacrifice some of your salary directly into your super instead of taking it all as pay.
- Personal (after-tax) contributions – you can make contributions from your take-home pay (or after-tax income) to your super account, either through BPAY or bank transfers.
- Government co-contributions – if you’re a low to middle income earner and make after-tax contributions to your super, the government may also match your contribution to your super up to a maximum of $500. For more information visit the ATO website.
- Spouse contributions – if your spouse is a low-income earner or isn’t working, you may be eligible for a tax offset of up to $540 for 2020-21 for any after-tax contributions made to your spouse’s super account. For more information visit the ATO website.
- Downsizer contributions – if you’re 65 years old or older, you can put up to $300,000 into your super using the money from the sale of your main residence. For more information, and the downsizer contribution form visit the ATO website.
Growing your super now may result in more money for your retirement, while potentially paying less tax.
Depending on your circumstances, putting money into your super now can be a tax-effective way to save for your retirement.
- It may reduce your taxable income - By redirecting some of your salary to your super, you could lower your taxable income. This could result in you paying less tax.
- You may pay less on contributions - your super contributions are taxed at 15% (if you earn less than $250,000 including super contributions) or 30% (if you earn more than $250,000 including super contributions). This may generally be lower than the tax rate you pay on your take-home pay, which can be as high as 47%.
You should check with your financial adviser on whether contributing into super will help you pay less tax.
What you need to consider
How much can I contribute? Is there a limit?
Before making any decision It’s important you understand and consider what you might be eligible for based on your own personal circumstances and finances, including what super products you have, whether contribution caps apply, and what you can afford and are comfortable making. Speaking to a financial adviser can help you accurately assess your situation.
Concessional and non-concessional contribution caps
It is important to note that caps apply to what you can contribute in a year. There are two main contribution caps:
- a concessional cap (before tax)
- a non-concessional cap (after tax)
A concessional super contributions cap generally applies to salary sacrificing and personal tax-deductible super contributions..
This effectively limits how much you can contribute to your super fund to receive the 15% or 30% tax rate. Any amounts you contribute over $25,000 per year will be taxed at your marginal tax rate, plus an excess concessional contributions charge.
Other contributions may also count toward the $25,000 limit. You can check with your financial adviser, but generally, this includes:
- Contributions by your employer, including compulsory contributions under the Superannuation Guarantee
- Contributions from any other jobs you may have held in the same financial year
- Contributions you make from your take-home pay which you choose to claim as a tax deduction
- Notional taxed contributions if you’re a member of a defined benefit fund.
Non concessional caps generally apply for personal contributions (non-tax deductible), and spouse contributions you receive. Depending on the total value of your super and income, you can generally contribute up to $100,000 per year. Your financial adviser will be able to help you determine how much you can contribute in a year based on your situation.
If you’re under 65, and your balance is less than $1.4 million (in respect of the 2020-21 tax year), you may also be able to take advantage of the bring-forward rules. These rules allow you to contribute up to $300,000 over 3 years, however, you won’t be able to make further after-tax contributions for the next 3 years.
If you go over your contribution limit, penalties will apply. However, downsizer contributions are not included in either of the limits mentioned above.
It’s also worth noting the below changes to the caps, applying from 1 July 2021. You can find out more here.
- the Australian government is increasing the concessional cap from $25,000 to $27,500
- the non-concessional cap will rise from $100,000 to $110,000. If under 65 and eligible, you can also bundle up to three years of non-concessional contributions, or $330,000, under the bring-forward rule.
Other caps and thresholds you should know
In addition to the contribution caps already mentioned, it’s worth noting recent 2021 Federal budget changes that will apply from 1 July 2021. For example:
- if you have a total super balance of $1.7 million or more (up from $1.6 million) as at 30 June of the previous financial year, you can’t make any non-concessional contributions.
- your total super balance will need to be below $1.48 million (up from $1.4 million) as at 30 June of the previous financial year, to contribute up to three years of annual caps ($330,000) under the bring-forward rule.
- the amount of super savings that can be transferred into a retirement pension will be $1.7 million, up from $1.6 million.
Changes to the work test exemption for those aged over 67
If you’re aged 67 to 74 you will need to meet a work test or be eligible for the recent retiree work test exemption in order to make voluntary super contributions.
With the recent retiree work test exemption, allowing you to make more super contributions:
- You must have a total super balance below $300,000 at 30 June of the previous financial year, and
- You can make voluntary contributions for 12 months from the end of the financial year in which you last met the work test.
However, you can only apply this rule once.
Other things to think about
- The value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risks.
- The government sets rules about when you can access your super. Generally, you can only access it when you’ve reached your preservation age (which will be between the ages of 55 and 60 depending on when you were born) and when you retire. If you want to access your super earlier, you can read more about it here.
- Check whether your investment options are right for you. Before deciding to make contributions, you may want to speak to your financial adviser to determine if this right for you.
If your super guarantee contributions are currently paid into another super fund and you would like to have it paid to your AMP Life super account instead, you can download the form below and provide it to your employer. You’ll need your account number or product name to download the right form.
If you want to make a one-off payment to your super, complete the form below and send it back to us
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