Making the most of the bring forward rules for your non-concessional contributions

An effective way of reaching your retirement goal

Bring forward rules for your non-concessional contributions

If retirement is on your mind but your superannuation balance has other ideas, then using non-concessional contributions can be an effective way of reaching your retirement goal quicker.

Simply put, a non-concessional contribution is paid from after-tax income and as you have already paid tax on the amount, is not subject to tax once deposited into a super fund. Currently, non-concessional contributions are capped at $150,000 in any given financial year.

Those aged 65 but less than 75, who satisfy the work test, can make non-concessional contributions of up to $150,000 each financial year, subject to satisfying the work test. The work test requires members of a superannuation fund to have worked 40 hours in 30 consecutive days at any time during the relevant financial year.

However, individuals under the age of 65 on 1 July of the relevant year, have the opportunity to make a non-concessional contribution of up to $450,000, averaged over three financial years. This allows those in the financial position to do so to bring forward two years of future non-concessional contributions. Individuals aged 63 or 64 can take advantage of the $450,000 non-concessional contributions cap and are not required to meet the work test in relation to years two and three unless further contributions are made in those years.

Using the rules to your advantage
Joanna, aged 63, has $600,000 net proceeds from the sale of an investment property. She intends to use these funds to make a non-concessional contribution into superannuation prior to retiring when she turns 65.

Under option 1, Joanna contributes $450,000 in 2011/12. She exceeds the annual non-concessional cap of $150,000 in the 2011/12 financial year and the ‘bring-forward’ provisions are triggered, which means that the $450,000 contribution is averaged over 2011/12, 2012/13 and 2013/14.

She is unable to contribute the remaining $150,000 in 2014/15 as she is over 65 years of age and does not satisfy the work test. Therefore, she has not achieved her aim of contributing the entire $600,000 into her superannuation.

But Joanna’s financial planner suggests that she consider an alternative strategy.

Click NEXT to read Joanna's other options

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