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Four ways to boost your retirement savings

With the new rules now in place around superannuation contribution caps, here’s four ways to boost your super savings ahead of retirement.

1. Top up your super by downsizing your home

By choosing to downsize, older Australians will soon be able to use the proceeds of the sale of their home to top up their super savings, according to recent government legislation.

From 1 July 2018, people aged 65 and older will be able to make a ‘downsizer contribution’ to their superannuation of up to $300,000 from the proceeds of selling their main residence.

The measure will apply to homes held for a minimum of 10 years, and both members of a couple may take advantage of it. That is, up to $600,000 of sale proceeds may effectively be contributed by a couple combined upon downsizing. To be eligible, the exchange of contracts on the home being sold must occur on or after 1 July 2018.

Downsizer contributions will not be subject to existing age and work tests that apply to voluntary contributions for those aged 65 or older. As such, they can be made in addition to any other contributions that individuals are eligible to make. That is, the $1.6 million total superannuation balance requirement when making non-concessional contributions will not apply.

It is important to note that downsizer contributions must generally be made within 90 days of the date of receiving the sale proceeds.

You can only make downsizing contributions for the sale of one home and you can't access it again for the sale of a second home. If you sell your home, are eligible and choose to make a downsizer contribution, there is no requirement for you to purchase another home.

Also, downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension. For more information, visit the Australian Taxation Office website.

From 1 July 2018, people aged 65 and older will be able to make a ‘downsizer contribution’ to their superannuation of up to $300,000 from the proceeds of selling their main residence.

2. Maximise your after-tax contributions

If you’ve already reached your concessional (before-tax) super contributions cap, you still have the option of contributing to super after-tax using non-concessional contributions.

While the non-concessional contributions cap has been cut from $180,000 to $100,000, it continues to provide an avenue for putting more money into super. Plus, under the bring-forward rule, you can contribute up to $300,000 in any three-year period, before age 65.

Also, there are still tax benefits on earnings within your super fund as these are taxed at a maximum of 15 per cent, instead of your marginal tax rate, while some capital gains are taxed at an effective rate of 10 per cent.

However, be aware that once your total super balance (just prior to the start of a financial year) reaches $1.6 million, no additional non-concessional contributions are allowed. The amount you can contribute under the bring forward rule also reduces once your total super balance (just prior to the start of a financial year) reaches $1.4 million.

And don’t forget, your super balance is preserved until you meet a condition of release (eg. retiring), so it’s not a place to store money you might want to get out in a hurry pre-retirement.

3. Don’t forget spouse contributions

Previously the spouse income threshold was $10,800, but now if your partner earns less than $37,000 a year you may be able to claim a $540 tax offset when you make a $3,000 contribution to their super fund.

The offset available reduces as your spouse’s income exceeds $37,000 or if your contribution is lower than $3,000, and phases out once your spouse’s income reaches $40,000.

But, this isn’t just about tax. The spouse contribution – which can also be made on behalf of a de facto partner or same sex partner – is a good way to boost the retirement savings of a partner who earns less or has taken time out of the workforce to care for children.

It can also, over time, help to equalise super balances between members of a couple, which can allow a greater level of super to be transferred into retirement phase income streams at retirement (where earnings are tax free).

4. Make use of investment bonds

Higher income earners on more than $87,000, where the personal tax threshold jumps to 37 cents in the dollar (plus the Medicare levy), could think about an investment bond.

Investment bonds, also called insurance bonds, offer a range of investment options similar to managed funds but may provide additional tax benefits. Earnings are taxed inside the fund at the 30 per cent corporate rate. Tax can be further reduced if you invest in a share fund with franking credits.

What’s more, if you hold the bond for at least 10 years, any withdrawals you make after that time are tax-free. However, also be prepared that if you make any withdrawals within the 10-year period, some or all of the earnings may be taxable, depending on when you make the withdrawal.

Investment bonds are especially useful if your total superannuation balance has reached the $1.6 million threshold, in which case you can no longer put non-concessional contributions into super, and need to find an alternative investment solution.

Get the right advice

Everyone’s financial situation is different. That’s why it’s a good idea to speak to a financial adviser who can help you secure your retirement income for the future.

 

Disclaimer
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.