Unlocking Your Super Limits: Maximizing Your Retirement Savings – 360 Financial Strategists

Putting more money into superannuation is a great way to save up for when you stop working.

Your employer puts some money into your super account while you’re working. You can also add extra money yourself, which can really boost your super savings in the long run.

The best part is, the money you put into super is only taxed at 15%. And when you retire, you can turn your super into a pension that you don’t have to pay tax on. You can also take some or all of your super limits out as a lump sum payment without paying tax after you retire.

But how much extra money can you add each year, and what’s the best way to do it? Let’s explore your super contribution limits and how you can maximize them for your retirement!

Understand your super limits

The first step to adding extra money to your super is knowing how much you can add.

Starting in July 2022, the minimum amount that all employers have to pay into their workers’ super accounts increased from 10% to 10.5% of their regular pay for employees aged 18 and older.

Employers also have to pay the same rate of super to workers under 18 who work more than 30 hours a week.

At the same time, the total amount of money you can put into super each year at the lower tax rate of 15% – including what your employer puts in – went up from $25,000 to $27,500.

And the amount you can add to super using money that’s already been taxed went up from $100,000 a year to $110,000. This is called non-concessional super contributions.

6 ways to boost your super contributions

1. Salary sacrifice

The easiest way to add extra money to your super is to tell your employer you want them to put more into your super fund directly from your pay.

Instead of paying your usual tax rate on this extra money, you’ll only pay a lower rate of 15%, which is automatically taken out.

You can usually tell your employer how much extra you want them to put into your super, either as a percentage of your salary or as a fixed amount. This is on top of the 10.5% they have to pay by law.

Because your money earns interest over time, even a small extra amount added to your super each pay period from your before-tax earnings can make a big difference to your savings for retirement.

2. One-off payments

Apart from salary sacrificing, you can also add money to your super fund using savings you’ve gathered over time.

You’ve probably already paid tax on this money at your regular tax rate. The Tax Office lets you deposit it into your super fund at any time during the year. You can then claim a deduction for the tax you’ve paid above the 15% super tax rate.

First, check if your super fund accepts after-tax contributions. Then, when you do your next tax return, fill out a form called ‘Notice of intent to claim or vary a deduction for personal contributions’. You can use after-tax contributions along with before-tax contributions, including those made by your employer.

3. Catch-up on super contribution limits

You might also be able to add more money to your super at the lower taxed rate of 15% under ‘catch-up legislation’. This started in the 2019-20 financial year.

This allows you to carry over any unused yearly contributions at the lower taxed rate for up to five years. For example, if you had $20,000 in contributions in 2020-21, and the yearly limit is $27,500, you can use the leftover $7,500 in contributions for the next year.

You can make catch-up contributions at any time and claim a tax deduction later.

You can check if you’re eligible for catch-up contributions on the myGov website under the Australian Taxation Office. Your overall super balance must be below $500,000 to use this option.

4. Non-concessional contributions

Non-concessional contributions are personal contributions you put into your super fund after you’ve already paid tax on them. You can’t claim them as a tax deduction.

These contributions have their own yearly limits and are different from the contributions that are taxed at a lower rate.

Usually, people make non-concessional contributions when they sell big assets, like a house or an investment property.

Right now, the yearly limit for non-concessional contributions is $110,000. But there’s a rule called the “three-year pull-forward rule” that lets you put in $330,000 in one year.

After that, you can’t add more non-concessional contributions for the next three years.

If you have more than $330,000 to put in, you could use the $110,000 yearly limit before June 30 next year. Then, starting from July 1, you could use the three-year pull-forward rule again to add up to $330,000 more.

The big advantage of adding money this way is that it grows tax-free in your super fund for when you retire.

5. Downsizer contributions

The “downsizer measure” lets people aged 60 and over add up to $300,000 (or $600,000 for couples) from selling their main home into their super.

This money goes into the tax-free part of your super fund. You can add this on top of your non-concessional contributions, and it doesn’t count towards your yearly limit.

There are rules about downsizer contributions, so it’s a good idea to check them on the Tax Office website.

6. Exceeding the limits

It’s really important to know all the rules about adding money to your super.

If you put in more money than allowed, it’s called excess concessional contributions. This extra money gets added to your income and taxed at your normal tax rate.

The Tax Office gives you a 15% tax break to make up for the tax your super fund already paid. You can take out up to 85% of the extra money from your super fund to help pay the extra tax.

If you don’t, you could end up paying a lot of tax. And any extra money left in your super fund counts towards your non-concessional contributions limit.

Want to make the most out of your super limits? A financial advisor can guide you in making the right financial decisions.

To find out if our strategies are right for you, feel free to contact 360 Financial Strategists online or on 03 9427 0855.