Your employer is making compulsory super guarantee (SG) contributions on your behalf, but how can you make your super grow faster?
There are two types of voluntary superannuation contributions:
- Concessional contributions, which include contributions made from your before-tax income, such as salary sacrifice and personal deductible contributions. (SG payments also count as concessional contributions.)
- Non-concessional contributions, which include contributions made from your before-tax income, such as salary sacrifice and personal deductible contributions.(SG payments also count as concessional contributions.
There are limits on how much you can contribute to super before you are forced to pay extra tax. (Read more about how super is taxed.)
The non-concessional (after-tax) contributions cap for the 2020/21 financial year is:
- $100,000 per year; or
- $300,000 in a rolling three-year period under the bring forward provision. This is where, if you’re under age 65, you can bring forward two years of non-concessional contributions without triggering a tax penalty.
There’s more good news. If your total income is less than $54,837 in the 2020/21 financial year and you make a voluntary after-tax contribution, you may be entitled to a Government Co-contribution payment.
To discuss your super contributions for this financial year, or for more details about contribution caps, speak to our Member Services Team on 1300 360 988.
THE CARRY–FORWARD (OR “CATCH-UP” RULE)
As we now know, the concessional contribution cap is currently $25,000 per financial year. But what happens if you don’t contribute the full $25,000 every year, as many of us won’t?
This is where the carry-forward rule comes into play.
Using the carry-forward rule, you can “catch up” on missed opportunities by rolling over any unused before-tax contribution cap into future years. Technically, you’re contributing more than $25,000 in a single financial year, but you’re doing so by bunching together your own unused cap amounts – which means you’re not breaking any rules.
For example, if you contributed only $15,000 to super last financial year, you could contribute $35,000 this financial year.
What are the benefits?
This rule gives you the flexibility to contribute larger before-tax amounts and maximise old contribution caps that would otherwise go to waste. This can be particularly helpful in the period leading up to retirement when you’re looking to boost your super to use as future income.
Do any conditions apply?
Yes. Here are the key things you need to know.
- This rule only applies from the 2019/20 financial year onwards.
- Unused cap amounts cannot be saved up forever and will expire after five years.
- The total super balance across all your super accounts must be less than $500,000 at the end of the financial year before you use the carry–forward rule.
We recommend seeking advice from a First Super Financial Planner to help you work out any unused carry-forward amount and the best way to use it.
Work Test and Work Test Exemption
There are age-related conditions under which a super fund can accept member contributions.
If you are aged between 67 and 74 years old at the end of the income year in which you made the contribution, you need to satisfy a Work Test or meet the Work Test Exemption criteria.
To satisfy the Work Test, you must work at least 40 hours during a consecutive 30-day period each financial year in order for First Super to accept a personal super contribution.
To meet the Work Test Exemption criteria, you must:
- have satisfied the work test in the financial year preceding the year in which you made the contribution,
- have a total super balance of less than $300,000 at the end of the previous financial year, and
- have not previously used the Work Test Exemption.
The Work Test Exemption applies from 1 July 2020.
We’re here to help. So let’s talk.
If you have any questions, please don’t hesitate to call our Member Services Team on 1300 360 988, or email us.