Superannuation millions: how to get extra money in quickly

Constant rule changes to superannuation do not stop Australians from investing big bucks for tax-free retirements, but you’ll have to plan earlier.

Stashing millions of dollars into superannuation before retirement as not as difficult as many Australians might think - if they can find the cash.

Despite constant rule changes since compulsory super started in the 1990s - and fresh challenges from Labor’s planned tax increases on individual’s balances above $3 million - it remains possible to pump in more than $2 million if you start 15 years before retiring.

“The design and nature of super now is it’s something you have to plan for,” says MBA Financial Strategists director Darren James.

Based on current annual caps for concessional (tax-deductible) and non-concessional super contributions of $27,500 and $110,000 respectively, an individual can get $2.1 million alone into super between their early 50s and mid-60s.

On top of that are $300,000 per person of downsizer contributions, allowed for seniors who sell their family home, and extra concessions for small business owners.

LOCKED AWAY

James says many people do not realise there is the non-concessional cap of $110,000 a year, and the fact that two further years can be brought forward into the same financial year – something people close to retirement can use to their advantage.

“You can put $110,000 in June and then $330,000 in July,” he says.

People aged in their 50s who start pumping cash into super can boost it by millions. Picture: iStock

“People tend to fixate on the concessional cap of $27,500 – a lot of times they say they can only do that, and they are not aware of that non-concessional cap”.

James says the biggest barrier for super savers is having the spare money to put into super.

“At the age of 50 the average person has a balance in super less than $500,000,” he says.

Figures from the Association of Superannuation Funds of Australia show the average super balance for all Australians is $162,000 for men and $130,000 for women.

James says many people also worry about super locking their money away until they meet a condition of release such as stopping work after age 60. Once people reach 65 they can access super regardless of whether they are working or not.

People can now pump non-concessional contributions into superannuation until age 75, and concessional contributions up until 67, after which they must pass a work test to continue.

“The trade-off risk with superannuation is legislative risk,” says James.

CHANGING RULES

Rules changes historically have not negatively impacted the vast majority of Australians, as governments tend to target the top end.

The rules still allow powerful strategies, such as claiming tax deductions for catch-up contributions made using previous years’ unused caps, and injecting large lump sums from selling a home or investment property.

“You have to start thinking about this earlier, as opposed to just before retirement putting a lot of money into it,” James says.

Perks Private Wealth director Simon Wotherspoon says there remains a range of opportunities to get extra money into super.

“If you are in small business, there’s small business CGT tax concessions that we quite often use that allow people to get money into super outside of the caps,” he says.

MBA Financial Strategists director Darren James

Perks Private Wealth director Simon Wotherspoon

“It’s possible to get as much as $1.65 million per person under one of the four small business CGT (capital gains tax) concessions. This depends on meeting a range of eligibility criteria and circumstances.”

Wotherspoon says many savers simply “don’t have the money in the first place”.

“A reason people say you can’t get that much money into super is often people don’t have the surplus cash flow to do that until much later in their career,” he says.

“By the time they have paid off their mortgage, they are trying to jam the money in over a short period of time.

“Holding money in super is a good place to build capital because it’s lightly taxed. Clearly the trade-off is accessibility – you can’t get to it until you meet a condition of release.

“Do not wait until just before retirement to think about it.”

HOW YOUR SUPER IS TAXED

• Employer contributions are taxed at 15% as the money goes in.

• Salary sacrifice is also taxed at 15%.

• Personal contributions (non-concessional), government co-contributions, spouse contributions and consolidating accounts are not taxed.

• Personal deductible contributions (concessional) are taxed at 15%.

• Investment earnings in super are taxed at 15 per cent while accumulating, and 0% in retirement.

• People earning more than $250,000 a year pay an extra 15% tax on some contributions.

Source: aware.com.au

Originally published as Superannuation millions: how to get extra money in quickly