Planning for retirement can be a real game of nerves, especially with questions like, "am I saving enough to keep doing the fun things in life after I clock out of work?" We all dream of financial security mixed with a dash of adventure during retirement. Think trips around the world, continuing your hobbies, buying new toys, or just comfortable living with no financial worries.
This stage of life is when your superannuation deserves your full attention. It can be your financial superhero and a tax-efficient way to pump up those retirement funds. Whether it's concessional contributions, which let your pre-tax dollars work harder, or non-concessional options for when you've got a little more to spare (like if an inheritance or windfall comes your way), super can be the saving powerhouse you need.
The beauty of superannuation lies in its flexibility and efficiency. From taking advantage of the downsizer contribution for those who are considering a house sale to making strategic choices during the accumulation and pension phases, these strategies ensure your nest egg isn't just a safety net, but a launching pad for your dream retirement. Let's explore these tools to make sure you're ready for every adventure that retirement throws your way!
When to Consider Concessional Contributions
Concessional contributions are pre-tax contributions to your superannuation. They include your employer's Super Guarantee contributions, salary sacrifice contributions, and any personal contributions claimed as tax deductions. They can be utilised any time throughout your working life, although some younger workers prefer to invest outside of super so they have access to the funds earlier in life, as super can generally only be accessed once you permanently retire.
Annual Concessional Contribution Limit:
- $30,000 for the 2024-2025 financial year.
- Unused cap amounts can be carried forward if your total super balance is less than $500,000 as of 30 June of the previous year.
Taxation on Concessional Contributions:
- Taxed at 15% within the super fund.
- Additional 15% Division 293 tax applies if income exceeds $250,000.
What About Non-Concessional Contributions?
Non-concessional contributions are after-tax contributions to your superannuation. They’re typically made from personal savings, gifts, or inheritances.
Annual Non-Concessional Contribution Limit:
- $120,000 from 1 July 2024.
- Under the ‘bring-forward’ rule, individuals under 75 can contribute up to three times the annual cap within a single year, allowing up to $360,000 if certain conditions are met.
Taxation on Non-Concessional Contributions:
- Contributions are not taxed upon entry into the super fund.
- Excess contributions are taxed at the highest marginal tax rate.
How to Utilise the Downsizer Contribution for Retirement Savings?
Downsizer contributions are a type of non-concessional contribution that doesn’t count towards the cap. This is a one-off contribution of up to $300,000 (each) from the proceeds of the sale of your residential home to your superannuation.
Downsizer Contribution Eligibility:
- You must be 55 or older.
- The home must have been owned by you or your spouse for at least 10 years prior to the sale.
- The contribution must be made within 90 days of receiving the proceeds of the sale.
- The proceeds from the sale must be exempt from capital gains tax under the main residence exemption.
- Taxation rules are the same as for non-concessional contributions.
Understanding the Superannuation Accumulation Phase
The accumulation phase is all about growing your superannuation balance through contributions and investment returns. Its purpose is to build your super balance during your working life to fund your retirement. After age 65, contributions can continue if you meet the work test or the work test exemption.
Taxation During Accumulation Phase:
- Investment earnings within the super fund are taxed at 15%.
- Capital gains tax is 10% if the asset is held for more than 12 months.
Pension Phase (or Retirement Phase)
The pension phase involves drawing down your super to fund your retirement. You can start a pension (income stream) at preservation age and upon meeting certain conditions of release.
Transition to Retirement (TTR) pensions are also available before meeting a full retirement condition of release. These let you access some of your super as an income stream while you’re still working. However, income and capital gains from TTR pensions are taxed at 15% (the same as the accumulation phase) until you meet a retirement condition of release.
In the pension phase, your super provides regular income, which can be taken monthly, quarterly, or annually. Lump-sum withdrawals can be made if necessary.
Taxation During Pension Phase:
- Investment earnings on assets supporting the pension are tax-free.
- Withdrawals for individuals aged 60 or older are generally tax-free.
Transfer Balance Cap:
- The cap is $1.9 million for the 2024-2025 financial year.
- Excess amounts must remain in the Accumulation Phase and are taxed at 15%.
Key Differences Between Phases
The accumulation phase is all about the growth of your super balance. The pension phase is about utilising the super balance for income during retirement.
Taxation on Earnings:
- Accumulation Phase: 15% on investment earnings.
- Pension Phase: Investment earnings are tax-free.
Accessibility:
- Accumulation Phase: Mostly inaccessible until conditions such as retirement are met.
- Pension Phase: Flexible withdrawal options for income needs.
By understanding these phases and contribution types, superannuation members can plan more effectively for their retirement and optimally utilise their super fund benefits.
Talk to BlueRock’s Financial Advisors for Retirement and Superannuation Success
BlueRock Wealth brings together financial advisors and investment managers who take a holistic approach to growing and protecting your wealth. Submit the form below to speak with a wealth advisor about your financial goals.
Disclaimer: The content is intended as general information only and should not be considered as advice on any matter and should not be relied upon as such. This has been prepared without taking into account any individual objectives, financial situation or needs. You should therefore consider the appropriateness of the information in regard to these factors before acting or seek advice before making any financial decisions. Blue Rock Investments (Melb) Pty Ltd is the holder of an Australian Financial Services Licence (AFSL No: 335588).
