Last week, I wrote about strategies for retirees with large superannuation balances. Today, we will think about the rest of the population.
I urge you to read this carefully – the changes that will take effect on July 1 are far-reaching and could make a major difference to your retirement plans. However, they do offer unique opportunities to maximise your superannuation.
The non-concessional contribution cap will drop from $180,000 to $100,000 a year, but the three-year bring-forward rule has a unique loophole.
Provided you are eligible, you can still contribute $540,000 ($180,000 a year for the next three years)Â even though the number will be just $100,000 a year after June 30. This could be especially important if you have a large superannuation balance, because no non-concessional contributions will be allowed after June 30 for anyone with $1.6 million or more in super.
If you are in a situation where one partner has a large balance, and the other has a small balance, you could consider withdrawing up to $540,000 from the larger account, and contributing it to the smaller account as a non-concessional contribution.
This strategy has a dual benefit – it maximises the amount able to be held in the zero-tax pension environment after June 30, and converts a significant portion of the taxable component to non-taxable. This means less death tax if the superannuation is left to a non-dependent.
A welcome forthcoming change is the ability for all contributors to claim a tax deduction for concessional contributions, even if an employer is paying superannuation for them. This will not take effect until July 1, so if you are thinking of contributing extra money to your super it may be worthwhile waiting.
Now, concessional contributions are capped at $35,000 a year for people aged 50 and over. This will drop to $25,000 for everybody after June 30. If you have the funds available, and are in a situation where you can claim a tax deduction immediately, you could consider making a concessional contribution sooner rather than later.
This reduction in the concessional contribution cap has huge ramifications for anybody who is salary sacrificing to the maximum. This financial year your limit is $35,000, next financial year it's $25,000.
For the contribution to count for this year, the funds must be received by your superannuation fund by midnight on June 30, which happens to fall on a Friday this year. But employers are required to pay the compulsory superannuation quarterly, not monthly. This means they have until the middle of July to make the contribution, which could take some of their employees over the limit for the next financial year, while not allowing them to use the full cap this year.
Savvy employers will work with their staff to ensure the contributions are made before June 30, and so give themselves a tax deduction in the current financial year. Savvy employees will take note of this and work with their employers to make it happen.
Despite the many changes to the rules, superannuation remains as complex as ever, and the strategies I have mentioned above are not recommendations, but simply ideas that you can discuss with your adviser.
Getting the right advice is critical; there could be huge penalties for getting it wrong.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email noel@noelwhittaker.com.au
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