BOOST YOUR SUPER WITH ‘CATCH UP CONTRIBUTIONS’
If you’d like to boost your super account for your retirement, there are options available to you. One of these is to make ‘catch up’ concessional contributions, and the 2019/20 Financial Year is the first time that you can do this.
If you have not contributed up to the $25,000 concessional contribution limit in a previous year, you may be able to make ‘catch up’ concessional contributions. Any unused amount up to the cap can be carried-forward for up to five years. This means you can effectively increase your concessional contribution cap in later years. The five-year carry-forward period will commence from 1 July 2018. This means that the first year in which you can make additional concessional contributions from your unused cap is the 2019-20 financial year.
There are eligibility rules for these catch up contributions. For example, your total super balance at 30 June of the immediately previous year must be less than $500,000.
Concessional = tax deductible contributions
Concessional contributions are tax deductible contributions and include the following:
- Superannuation Guarantee contributions
- Salary sacrifice contributions
- Voluntary employer contributions
- Personal contributions for which a tax deduction has been claimed and allowed in the individual’s tax return
- Any contribution made by an entity such as a trust or company
- ‘Notional’ contributions made to defined benefit funds such as the PSS.
The maximum amount of concessional contributions you can make in 2018-19 is $25,000, regardless of your age. This cap will be indexed but only in increments of $2,500. It remains $25,000 in 2019/20.
Ashlea makes ‘catch up ‘ contributions into her super
Ashlea’s employer has made Superannuation Guarantee contributions of $5,000 each year into her super account. Her concessional contribution cap is $25,000, so that means she has an unused cap of $20,000 each year. This cap accumulates each year. So by the 2021/22 Financial Year, Ashlea will have an unused concessional contributions cap of $60,000. In that year she is also able to make contributions of up to $25,000. This means she could make total concessional contributions of up to $85,000 in 2021/22.
Ashlea decides to make ‘catch up’ concessional contributions of $45,000. This is in addition to the $5,000 of contribution her employer is making in 2021/22. This means she has used $50,000 of the total $85,000 she can make. She can then carry forward the unused cap of $35,000 for another year.
Once Ashlea’s total superannuation balance exceeds $500,000, she will no longer be able to make catch up contributions into super.
Don’t exceed the cap!
It is very important not to exceed the concessional contributions limit, as penalties do apply. So please speak to your Milestone Financial adviser if you would like more information about this strategy.
Milestone Financial Services ABN 68 100 591 508 is an Authorised Representative of AMP Financial Planning Pty Limited, ABN 89 051 208 327 AFS Licence Number 232706, Level 8, 33 Alfred Street, Sydney NSW 2000, Australia. This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. The examples used are illustrative only and are not an estimate of the investment returns you will receive or fees and costs you will incur.
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