At this time of year, many people are reviewing their finances and considering opportunities to improve their financial wellbeing. One strategy that is sometimes overlooked is catching up on concessional superannuation contributions.
What is a ‘catch-up’ concessional contribution?
It used to be a case of ‘use it or lose it’ when it came to super contributions. If you couldn’t contribute the maximum annual concessional (before-tax) contribution amount to superannuation in a financial year, the opportunity was lost.
As a result, many people entered retirement with a lower super balance than they hoped for. This was typically a result of their working life being interrupted by starting a family, taking care of parents, or studying.
However, from 1 July 2019, new rules were introduced that allowed people with less than $500,000 in superannuation to “carry forward” their unused concessional contributions to top up their super contributions in the future.
Can I make concessional contributions now?
For the 2023/2024 financial year, an annual cap of currently $27,500 applies to concessional contributions made before June 30, 2024. After this, it increases to $30,000 per annum. This is the most that can be contributed in one year under concessional caps.
Concessional contributions include:
- mandatory employer contributions (such as Super Guarantee)
- salary sacrifice contributions (paid from salary before it’s taxed), and
- personal contributions for which a personal tax deduction is claimed.
Under the updated rules, if the concessional contributions in one year are less than the annual cap for that year, the ‘unused’ amount can be carried forward for the next five financial years. After five years, that unused amount will expire.
For example, if someone has made total concessional contributions of $10,000 out of the available $25,000 in the 2020/2021 financial year, the unused amount of $15,000 could be carried forward for the next five years. For those who are eligible, this means they can make a greater concessional contribution in a future year.
People aged between 67 and 74 will need to meet a work test to make concessional contributions. They need to have done at least 40 hours of paid work in any consecutive 30-day period that financial year. Those over age 75 can’t make voluntary concessional contributions.
Can I make catch-up contributions?
Those with an unused amount that they have carried forward from an earlier year, should first look at their total super balance.
The total super balance at the 30 June prior to a contribution being made must be less than $500,000 in order to be eligible to make the catch-up contribution using the carried forward amount.
The balance at a particular time is broadly the total of the:
- accumulation phase value of super interests
- value of super pension accounts
- rollovers in transit between super funds.
This amount can be determined by contacting the super fund or funds, and can also be found in the latest balances reported to the Australia Taxation Office through the MyGov online services.
Disclaimer
Peter Speechley (ASIC No.246156) and HLB Wealth Pty Ltd (ASIC No. 428645) are Authorised Representatives of Paragem Pty Ltd ABN 16 108 571 875, AFSL 297276
General advice warning: The advice provided is general advice only. In preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product. HLB Wealth is an authorised representative Paragem Pty Ltd, ABN 16 108 571 875 holder of Australian financial services licence number 297276 (“Paragem”).