The 2016 Federal Budget paved the way for several changes to superannuation contributions, the majority of which come into effect from 1 July 2017. While the changes are still proposals and are yet to be legislated, Research and Technical Manager, Matthew Lapinskas from Money Solutions highlights 4 key things which may impact your retirement planning.
5K reduction to the concessional cap
In the habit of making additional super contributions? As of 1 July 2017, if legislated, the concessional cap will reduce from $30,000 (currently $35,000 for those over 50 at any point in the financial year) to $25,000 per annum.
Despite this reduction, concessional contributions could still be a tax efficient way of boosting your balance. Work out how additional contributions could make a difference to your super balance with our retirement planner.
Less than $500K in super? Catch up with your contributions
If your super balance is under $500k, and you didn’t reach your concessional contributions cap in the previous year, then you will be allowed to make surplus concessional contributions in the following years.
If implemented, this comes into effect on 1 July 2017, with surplus contribution cap amounts carried forward on a 5 year rolling basis. For example, while the concessional contribution cap is reducing, an individual will effectively be able to contribute up to $125,000 in concessional contributions in the 2021/22 financial year if they have not made any contributions since 1 July 2017.
Using catch up contributions could be an effective way to grow your super balance, possibly in combination with a Transition to Retirement (TTR) strategy. You may also benefit from the concessional tax treatment of super contributions which may be lower than your marginal tax rate.
If you have a spouse, you may consider splitting contributions to keep account balances under $500,000.
$500K lifetime cap on non-concessional contributions
The current $180,000 non-concessional (after tax) annual contribution cap will be replaced with a new cap, limiting non-concessional contributions to $500,000 for an individual’s life time. If you have a history of making additional contributions after tax, this change could impact the way you save into your super going forward.
If implemented, this comes into effect from 7.30pm on 3 May 2016, and all non-concessional contributions from 1 July 2007 will count towards the cap.
Contributions for individuals ages 65-74
There’s good news on the horizon for those nearing or in retirement. If legislated, if you’re aged over 65, and aged under 75, you will be able to contribute to your super regardless of your work status as of 1 July 2017. This could be helpful if you receive a windfall, for example, and want to add to your super fund.
In addition, the proposed rules mean you can also make spouse contributions to a spouse under age 75 (compared with the current limit being 70 years).
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The information contained in this blog post is general in nature. It does not take into account your personal goals, financial situation or needs. As such, the information contained in this blog post is no substitute for personal financial advice. Money Solutions Pty Ltd is a member of ASFA, the FSC and a Professional Partner of the FPA. Money Solutions holds an Australian Financial Services Licence (AFSL 258145), ABN 36 105 811 836
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