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Behind With Your Super and Worried About Having Enough for Retirement? Here’s How to Catch Up Over the Next Five Years

Article By Adam Hurwood | | Accounting & Tax, Financial Planning

Have you missed a year of super contributions?

That can put you behind in what you hope to have when you retire.

However, thanks to some recent changes in super legislation, you can start catching up over the next five years.

What are catch up super contributions?

Recent changes to super regulations can help you save on tax AND catch up on super contributions.

Concessional super contributions are tax-deductible payments made into your super account either by an employer or by yourself as a self-employed person.

As the close of the financial year draws near, why not take advantage of the opportunity to contribute an additional amount to the current maximum concessional contribution of $25,000 per year?

How come?

Well, if your super balance at 30 June 2019 was below $500,000 and your contributions in the last financial year were less than $25,000, the unused contributions will now carry forward for the next five years.

How would catch up super contributions work for you?

If you decide to make catch up super contributions, how would it work?

Let’s look at a quick example:

  • Say you had $450,000 in your super fund on June 30, 2019
  • You contributed $10,000 through the mandatory employer super contributions and made no voluntary contributions to your super account in the 18/19 financial year
  • $15,000 would carry forward to the 19/20 financial year
  • Add this to the $25,000 cap from this year means that in total you will be able to make $40,000 in total contributions this financial year.
  • Again, you make the $10,000 employer contribution
  • The remaining value of $30,000 can be made as a concessional contribution

What are the benefits of making catch up super contributions?

The key advantage of making a voluntary contribution to your super account is that it can be used as a tax deduction as well as building your assets for retirement.

By allowing the carry forward from past years, you will not lose the ability to make these deductions if you cannot take advantage of them every financial year.

Say your marginal tax rate was 39 percent in the above example. By making the $30,000 concessional contribution:

  • You would save the standard $11,700 in tax payable on these earnings
  • Instead, you would pay $4,500 in super tax (at a rate of 15 percent)
  • Your net tax saving would be $7,200 for the year

Who are catch up super contributions beneficial for?

The significant benefits associated with making catch up super contributions could be really useful for people who are;

  • Coming back to work after a few years off and looking to catch up quickly with super payments
  • Realising a capital gain and looking to use the cap from previous years to help offset the tax liability
  • Working in an occupation with a volatile income and looking to increase their super in the good years and hold off in the bad
  • Free from the burden of paying a mortgage with more cash flow available to use to catch up on super
  • Free from the burden of paying private school fees and able to invest that money into their super fund

If this strategy sounds right for you or you need help reaching your financial goals, contact an Altitude Adviser for more information.