There’s currently a short window of opportunity for you to make more of your hard-earned retirement funds – just under six months to be exact. From 1 July, it’ll be harder to contribute to super but the good news is we’ve identified three key priority areas to review and act upon now in order to optimise your retirement savings before the changes hit.
1. Review your eligibility to make non-concessional contributions to super before 30 June
Consider bringing forward non-concessional contributions into this current financial year because until 30 June, the old rules still apply. This means you can contribute up to $180,000 (and if you are under 65 up to $540,000 by using the three-year bring forward provision) but come 1 July, the limits decrease. This means that the annual contribution allowances will be capped at $100,000 and the three-year bring forward provision contribution (again only available to you if you’re under 65) falls to a maximum of $300,000.
And it’s important not to wait– if your total super balances reach $1.6 million after 30 June then you can’t make any additional non-concessional contributions at all. The Government will assess all account types in measuring this cap including accumulation, pension and defined benefit pensions (and they’ll have a notional lump sum value applied). And with the prospect of those limits being further reduced at the next federal election, planning on contributing later has its own risks.
It’s also a good idea to weigh up the advantages of holding your money inside super, because tax savings can be significant when compared to holding the same amount of money in a higher tax rate environment – particularly when compounded over 10 to 20 years. If you’re considering the sale of an asset (like property) or transferring shares to boost your super; strategies such as ‘contribution reserving’ can help you manage the capital gains implications.
2. Review your plans if you have more than $1.6 million in super (or expect to soon)
If you’ll be affected by the $1.6 million limit that restricts how much you can hold in the tax-free retirement pension phase then take the time now to consider what you’ll will do with the excess funds.
If you’re affected, you’ll need to make several decisions before 30 June with options ranging from re-distributing them to an eligible spouse, to rolling excess amounts back to the accumulation phase. If you hold an SMSF, the latter is expected to be the most tax effective and administratively efficient option. Talk to your financial advisor for guidance here.
It’s also worth noting that although amounts above $1.6 million cannot be held in a tax-free retirement pension account, they don’t have to leave the super system altogether and the tax rate within the super accumulation phase is still very attractive.
3. Do your super sums if you’re a public servant with a Defined Benefit fund
If you’re retired (or about to be) and receive a Defined Benefit (DB) super pension, you’ll need to do your sums now too. From 1 July, a factor of 16 will be applied to convert DB pensions to a ‘notional’ lump sum value, which will count towards the $1.6 million tax free that can be held in your retirement pension account. This is proposed to apply to all unfunded (i.e. CSS) and funded (i.e. Unisuper) pensions.
For example, if retired public servant Jane’s DB account pays her $60,000 annually, it will be valued at $960,000. This lump sum forms part of the allowable $1.6 million that can be held tax-free in her commercial retirement pension account. As Jane also has funds in other super accounts totalling $800,000 her total amount in super now exceeds the cap by $160,000. It’s important for Jane to get advice about her restructuring options to avoid incurring penalties.
So don’t wait. Talk to a specialised family wealth advisor to get ahead of the changes. For personalised advice to help you make the most of your hard-earned retirement money now, click here to find out how we can help.
This article has been sponsored by Dixon Advisory & Superannuation Services Limited (ABN 54 103 071 665, AFSL 231143). This article may contain general financial advice and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Any forward looking statements are based on current expectations at the time of writing. No assurance can be given that such expectations will prove to be correct. For more information, please visit the Dixon Advisory website