‘Should we keep making super contributions when our balance is falling?’

Q: As a self-employed couple, we’re able to claim a tax deduction on our superannuation contributions of $25,000 annually. We have small-ish super accounts at the moment ($250,000 for husband and $150,000 for me) but we have $150,000 currently in the bank from the sale of our house when we downsized. We’ve been using this money for the past couple of years to make the extra super contributions (we weren’t eligible for the government downsizing program) into both of our super accounts. Given that our super balances are actually going down in the current market environment, should we leave our money in the bank this year or should we still contribute $25,000 into each super account and diminishing our bank balance? We are still technically employed full-time. My husband is 70 this year and I’m 63, so there’s still four years for me until I’m eligible for any Age Pension.

A: This is a good question and the answer will depend upon your taxable income at present. Generally, I would only propose making tax-deductible superannuation contributions where your taxable income is sufficiently high to justify the deduction.

When you make deductible superannuation contributions you pay a contribution tax of 15 per cent. If you refer to the table below, you will see that it would only make sense to consider making additional contributions where your individual taxable incomes exceeded $37,000.

Apart from taxation considerations, there is the issue of highly volatile financial markets affecting superannuation balances. If you are concerned in this regard, you could still consider making deductible super contributions (assuming your income is high enough) and directing these new contributions into the cash investment option in your superannuation fund.

Also, as your husband is over 65, he can make the contribution, claim the tax deduction and then withdraw the funds immediately tax-free.