As we head into autumn, Australians have just a few months to add a bit extra to their super before tight new contributions limits take effect from 1 July 2017.
At present, before-tax super contributions are restricted to a maximum of $30,000 annually (or $35,000 per year if you’re aged 50 or over before 1 July 2017). From 1 July, the annual limit on these contributions will be cut to $25,000 regardless of age.
For self-employed workers, who can claim a tax deduction for before-tax super contributions (up to the annual limit), it is worth contributing the maximum that applies before 1 July, cashflow permitting.
If you work as an employee, the bulk of your before-tax super contributions probably come from the bosses’ compulsory contributions set at 9.5% of your normal wage or salary. But you could also be making salary sacrifice super contributions, where part of your pre-tax wage is paid into super rather than receiving it as cash in hand.
If that sounds like you, bear in mind that both your bosses’ contributions and your own salary sacrifice contributions count towards the single upper limit. Do check that you won’t exceed the new threshold of $25,000 that applies from 1 July. This is especially important if you’re due for a pay rise in the new financial year as this will push up your employer’s contributions.
The amount you can add to super from your own wallet - known as after-tax contributions, is also tightening on 1 July.
Currently, these contributions are limited to $180,000 per year. Or, if you’re aged under 65, you can use the ‘bring forward’ rule to contribute as much as $540,000 in a single year providing you make no further after-tax contributions for the following two financial years.
From 1 July 2017, the limit on after-tax contributions will drop to $100,000 annually – a solid cut of $80,000. You’ll still be able to bring forward three years’ worth of contributions in a single year but this will be limited to $300,000 in one year, a reduction of $240,000 on the present limits.
These are significant cuts to after-tax super contributions, and if you have spare cash through, say, the sale of an investment property or an inheritance, it could be worth taking advantage of the current higher contributions limits to grow your super.
Adding money to your super savings means having more to live on in retirement, and that’s important. But keep an eye on how much you’re tipping into super – especially after 1 July. Going over the annual thresholds will mean facing additional tax and penalties on your super contributions.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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