InvestSMART

Paul's Insights: Playing catch-up with your super

We've all had plenty to deal with this year, so it's no surprise that carry-forward super contributions may have passed under the radar of many pre-retirees.
By · 27 Jul 2020
By ·
27 Jul 2020
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For much of our working lives, retirement seems a long way off. But in the blink of an eye we can find ourselves in our mid-50s with insufficient super for our ideal retirement lifestyle.

The solution can be catch-up super contributions.

By way of background, ‘concessional’, super contributions are limited to $25,000 annually. This includes your employer’s compulsory super contributions typically set at 9.5% of your gross salary. 

For many workers, the bosses’ super contributions will come in below the $25,000 yearly limit. When that happens, you may be able to claim a tax break by contributing the difference to super out of your own pocket.

As a guide, let’s say Nicky’s employer contributes $10,000 to her super this financial year. That means she can potentially claim a tax deduction for up to $15,000 ($25,000 less $10,000) that she adds to super from her own money.   

It can be a great way to grow your super while saving on tax today. But to really fast-track your super balance, carry-forward contributions can come in handy. These let you make use of any unused concessional super contributions from previous years as long as you have less than $500,000 in super at the start of each financial year.

We’ll say for instance that last financial year, Bill’s boss contributed $15,000 to Bill’s super fund – that’s $10,000 less than the annual limit. Bill was strapped for cash and so didn’t add any extra to his super. But he can carry forward that unused $10,000 to the current financial year.  

If Bill’s employer once again contributes $15,000 to Bill’s super in 2020/21, Bill can potentially make a concessional super contribution of $20,000 this financial year – comprised of a carry-forward contribution of $10,000 from last year, plus $10,000 from 2020/21.

Sure, not everyone has that sort of money sitting around. But if you’ve sold an investment property for a capital gain, or you’ve earned a decent work bonus or received an inheritance, it is worth thinking about making catch-up super contributions, especially if you’re in the pre-retirement period.

You are able to carry forward unused concessional contributions from 1 July 2018, so you could have several years’ worth of these contributions to call on – but they can only be carried forward for a maximum of five years. This makes it worth talking to your tax adviser to see if carry-forward contributions could be the solution that lets you play catch-up with your retirement savings.

 

Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.

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Frequently Asked Questions about this Article…

Catch-up super contributions allow you to make additional contributions to your superannuation fund, using any unused concessional contributions from previous years. This can help boost your retirement savings, especially if you find yourself with insufficient super as you approach retirement.

Concessional super contributions are capped at $25,000 annually and include your employer's compulsory contributions, typically set at 9.5% of your gross salary. If your employer's contributions fall below this limit, you can contribute the difference from your own funds and potentially claim a tax deduction.

Yes, if your employer's contributions are below the $25,000 annual limit, you can contribute the difference from your own money and claim a tax deduction for that amount, helping you save on taxes while growing your super.

Carry-forward contributions allow you to use any unused concessional super contributions from previous years, provided you have less than $500,000 in super at the start of each financial year. This can be particularly beneficial if you have extra funds from a capital gain, bonus, or inheritance.

You can carry forward unused concessional contributions from 1 July 2018, and they can be carried forward for a maximum of five years. This gives you the opportunity to make larger contributions in future years if you have the financial capacity.

Before making catch-up super contributions, consider your current financial situation, potential tax benefits, and consult with a tax adviser to ensure it's the right strategy for boosting your retirement savings.

Yes, the total amount you can contribute using carry-forward contributions is limited by the unused concessional contributions from previous years and the $25,000 annual cap. It's important to calculate these amounts accurately to maximize your contributions.

The pre-retirement period is crucial for maximizing your super balance. Making catch-up contributions during this time can significantly enhance your retirement savings, ensuring you have a more comfortable lifestyle in retirement.