Legislation commencing 1 July 2022 has opened some new opportunities for older Australians to get more money into superannuation.
The change means that people aged 67 – 75 years can now make contributions from after-tax money, called non-concessional contributions (NCC), without the requirement to be working on at least a part time basis.
How much can older Australians contribute to their superannuation?
This allows contributions of up to $110,000 per year, or $330,000 in three consecutive financial years into super. On top of that, in the year you turn 75 you can bring forward two more years of NCCs from when you’d no longer be able to contribute. If timed correctly, this could mean an extra $220,000 in your super.
It is important to note that the ability to contribute these amounts are subject to how much you already have in super.
Changes to downsizer contributions
There is also a change to the downsizer contribution, allowing a one-off contribution from the proceeds of the family home, lowering the eligibility age to 60 years. The ability to make this contribution is not dependent on your superannuation balance and there are no maximum age restrictions. It also does not count toward the NCC caps mentioned above.
Consider a couple over 60 who decides to sell their family home as they no longer need the space and would like to get as much of the cash into a tax free or low tax environment. Utilising both downsizer and NCCs, they may be able to contribute up to $1,260,000 combined in that financial year.
If retired, or over 65, using this money to commence pensions means any earnings on these amounts is tax-free. The money can also be accessed as soon as you like and is also tax-free. If structured correctly, these pension interests can also retain their tax-free status when paid out to your estate or directly to adult children on your passing.
'Recycling’ of pension interests
Another useful estate planning strategy that is available to people over 60 is the ‘recycling’ of pension interests that have taxable components, called re-contribution.
Upon death, taxable components paid to your estate or adult children are taxed at 15% and 17% respectively. Taxable components are made up of contributions made due to employment, that you have claimed a tax deduction for, and/or any earnings prior to the commencement of a pension.
By drawing money out of pension interests with high taxable components, recontributing these amounts as non-concessional contributions and beginning new pensions, you can reduce the taxable components in the fund.
How can Walsh Accountants help?
The rules around contributions and pensions are complex and it is strongly recommended you seek advice from a professional prior to making contributions or playing out any estate planning strategies.
If you need assistance in relation to your superannuation or estate planning strategies, we highly recommend you contact our SMSF Manager Grant Sloggett.
The above advice is general in nature and my not be suitable for your particular and personal circumstances. Taxation is only one consideration, and you should consider consulting a licenced financial adviser for the appropriateness of any of the above for your situation.