How to significantly build your super balance in the lead up to retirement is a common question asked by many of our clients. While the rules around super contributions have tightened up over the last few years, there are still opportunities to boost your super balance before you retire.
In this article, the third in our frequently asked financial questions, we explore the answer to this question, and more.
#1: Is it possible to contribute large sums of money to super anymore?
While superannuation is considered one of the most tax-effective investments for creating wealth, making large contributions to super has become more difficult over the last few years due to a number of rule changes. However, downsizer contributions, carry-forward contributions and the bring forward rule could be options that could help you to boost your super in the lead up to retirement.
Downsizer contributions
If you are over 65 years of age, downsizer contributions allow you to contribute an after-tax contribution of up to $300,000 to your super from the proceeds of selling your home. A couple may contribute a total of $600,000. There are no restrictions on purchasing a smaller house and you don’t even need to re-enter the property market. Benefits of the incentive include:
· You don’t need to be working to make a downsizer contribution
· As a couple you can contribute up to $600,000 to your super
· Downsizer contributions are not included in your after-tax contribution cap
· There is no upper age limit for making a downsizer contribution
· You don’t actually need to downsize or re-enter the property market
Find out more about in our ‘Downsizing to upsize retirement’ case study.
Pre-tax carry-forward contributions
Carry-forward contributions enable you to carry-forward unused annual concessional (pre-tax) contribution limits for up to five years. Concessional contributions include employer’s Super Guarantee payments, salary sacrifice contributions or any other personal contributions where a tax deduction is claimed.
The 2018-19 financial year was the starting year for accrued unused cap amounts, and to be eligible for catch-up concessional contributions you must have a super balance less than $500,000 at 30 June in the previous financial year.
The bring forward rule – after-tax contributions
The bring forward rule also enables you to bring forward three years of non-concessional (after-tax) contributions in one financial year. Eligible members can contribute non-concessional contributions of $110,000 per annum, or up to $330,000 (depending on your overall superannuation balance) in a single year if utilising the bring forward rule. If you take advantage of the bring-forward rule, you can only contribute non-concessional contributions again once the next three-year period expires.
#2: I have a Will in place, so why do I need an Estate Plan?
While you may have a Will in place, without an appropriate Estate Plan you may be inadvertently leaving tax burdens or complications for your beneficiaries. An Estate Plan includes items often not included in a Will such as superannuation funds, jointly held assets, assets held in trusts and, in some cases, business assets.
A properly drafted Estate Plan considers all your assets and entities and how these will be impacted upon your passing, including possible tax implications, asset protection requirements, and importantly a much more certain outcome for your chosen beneficiaries.
#3: What can we do to get ahead financially while interest rates are low?
While paying down your mortgage reduces your debt and helps you work towards owning a significant asset, there may be more appropriate strategies to manage your finances and build your wealth for the long-term. These strategies may help you get ahead financially while interest rates are low:
Restructuring your debt: There could be significant advantages to refinancing your mortgage to a provider with a lower interest rate or more flexible payment options. You could consider an offset bank account which enables you to offset your mortgage against your savings, potentially saving thousands in interest in the long-term.
Debt recycling: This wealth accumulation strategy involves using an investment loan to invest in income producing assets, with the income earned, used to pay down your mortgage. It’s a continual process where the debt in your mortgage (non-deductible debt) is replaced by debt associated with an investment loan (deductible debt). This strategy can be especially worthwhile during periods of low interest rates and may also have tax advantages.
If you would like to know more about financial strategies that help create financial independence, I encourage you to contact us now on 07 3720 1299 or email admin@wealthfundamentals.com.au
Read more frequently asked financial questions
Frequently asked financial questions #1
Frequently asked financial questions #2
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.
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