Technical expert flags top contribution strategies for the new year
The start of the new year is a good opportunity for SMSF clients to consider boosting their retirement savings through contributions, says SuperConcepts.
In a recent article, SuperConcepts executive manager, SMSF technical and private wealth Graeme Colley said with less than six months left of the current financial year, now is an ideal time to start thinking about contribution strategies, particularly in light of recent legislative changes.
Changes to the work test and the reduction in the eligibility age for downsizer contributions have opened new opportunities for some clients to make contributions.
Personal super contributions
Mr Colley noted that since 1 July 2022, personal non-concessional superannuation contributions can be made until just after a person has reached age 75 years without meeting a work test.
“However, when it comes to claiming a tax deduction for personal contributions, anyone aged between 67 and 75 is required to meet a work test of at least 40 hours in 30 consecutive days during the financial year in which the contribution is made,” he stressed.
“It’s important to make sure the contribution caps are not exceeded and anyone making non-concessional contributions considers their total super balance on 30 June in the previous financial year to determine whether the contribution can be made without a penalty applying.”
Bring forward rules
Mr Colley noted that anyone under the age 75 limit, which is 28 days in the month after the person turns 75, may have access to the bring forward rule for non-concessional contributions.
The bring forward rule allows a person to make up to $330,000 over a fixed period commencing in the first year in which they make non-concessional contributions in excess of the standard non-concessional contribution of $110,000.
“It is possible for a person to make non-concessional contributions of up to $330,000 at any time over a fixed three-year period if their total super balance on 30 June in the previous financial year is at most $1.48 million,” explained Mr Colley.
“If they have a total super balance between $1.48 million and $1.59 million, they can make non-concessional contributions of up to $220,000 over a fixed two-year period. And, if they have a total super balance between $1.59 million and $1.7 million, then they have access to the standard non-concessional contribution of $110,000 each financial year.”
Downsizer super contributions of up to $300,000 are available on a once-only basis to anyone who has sold their main residence that has been owned by a member of a couple for at least ten years, said Mr Colley.
The contribution must be made within 90 days of the sale of the residence, he noted.
“Until 31 December 2022, the minimum age limit to qualify for the downsizer contribution was 60 years old, but the good news is that from 1 January 2023, the age limit has been lowered to age 55,” he stated.
“There is no upper age limit or super balance limit which applies to making downsizer contributions.”
Contribution splitting is another strategy that SMSF clients may want to consider, said Mr Colley.
This is where a person split concessional contributions to their spouse.
“To qualify, the split to the person’s spouse can take place if they are under preservation age (currently 59 years of age) or between preservation age and 65 years old if they have not retired,” he explained.
“Concessional contributions include the employer’s super guarantee contributions, salary sacrifice contributions and personal deductible contributions. It is possible to split up to 85 per cent of the person’s concessional contributions or up to their concessional contributions cap, which has been explained previously.”
Mr Colley said it is important to be aware that the splitting of the concessional contribution to the person’s spouse takes place in the financial year after it was made to the fund.
“Concessional contributions made in the 2021/22 financial year will usually be split in the 2022/23 financial year,” he said.
“This member is required to make an election that informs the trustees of the amount to be split.
“However, for anyone who is rolling over or transferring the whole of their super to another fund, or
withdrawing all of their super as a lump sum, or a combination of the above two actions, the election and split must be made prior to any of these events taking place which may occur in the year in which the concessional contributions were made to the fund.”
Recontributing to super
The recontribution strategy, Mr Colley explained, can be used once a fund member meets a condition of release of retirement or when they reach age 65, whichever occurs first.
“It involves the withdrawal of a lump sum and recontributing the amount withdrawn back to the fund subject to the person’s non-concessional contribution cap,” he said.
“The strategy has been used for many years and can have some estate planning benefits if a taxable pension is paid to a member, or death benefits will be paid ultimately to adult children.”
Mr Colley said it is possible to recontribute amounts withdrawn from the super back to the fund as non-concessional contributions providing the person has a total super balance of less than $1.7 million.
“The effect of the recontribution strategy is able to reduce the amount of tax an adult child is required to pay on the death of a parent if they receive a super payment,” he said.
“To see whether there is any benefit in using the recontribution strategy, advice is always recommended.”