Superannuation should play a major part in your retirement plans.
Let's face it, it lets you build up assets in a low tax environment, and a good fund will typically do better than you could do on your own.
But judging by the emails I receive, many people are unaware of recent changes that offer useful strategies to save tax and build wealth.
Since July 1, 2018, anybody with a superannuation balance of less than $500,000 at June 30 in the previous financial year has been able to use their unused concessional contributions caps to make additional concessional contributions - these are known as catch-up contributions.
The amount that can be contributed is calculated on a rolling basis for a period of five years, but keep in mind that amounts carried forward that have not been used after five years will expire.
Only unused amounts accrued from July 1, 2018 can be carried forward, so the effective start date for additional contributions was July 1, 2019.
Case study: Harry is 68, and works as a handyman. His superannuation is minimal. He expects to sell an investment property next year that will trigger a taxable capital gain of $75,000 after the 50 per cent discount.
Because he has not made any concessional contributions for the three years beginning July 1, 2018, he will have the right to "catch up" for those three years with contributions of up to $75,000 in the 2022 financial year, provided his super balance is less than $500,000 at June 30, 2021.
This catch-up contribution can be offset against the taxable capital gain, and may well eliminate any capital gains tax.
Until recently, you could not contribute to superannuation past age 65 unless you passed a work test - which requires working for at least 40 hours in a consecutive 30-day period during the financial year in which you make a contribution. This age limit has now been changed from 65 to 67.
There are now also work test exemptions for Australians aged 67 to 74. In certain circumstances, new retirees aged between 67 and 74 can now make voluntary contributions to their super account without having to undergo a work test.
To be eligible, your total superannuation balance must be less than $300,000, you must make the contribution within 12 months of the end of the financial year in which you last met the work test, and you must not exceed the existing contribution caps.
This doesn't mean that a person aged 68, who has made no contributions for years, can suddenly contribute at age 68. In scenarios such as this, a work test would still have to be satisfied.
These new rules enable workers approaching retirement, and new retirees, to boost their superannuation balances using the $25,000 concessional cap and the $100,000 non-concessional cap. And of course, to use the catch-up contributions strategy mentioned above, if appropriate.
A major finding of the Cooper enquiry into superannuation was that most people are disengaged with their super. It's time to get engaged.
The above strategies - as well as the ability to now contribute up to $600,000 into super irrespective of current superannuation balance by downsizing - mean the opportunities to build wealth are better than ever. Don't miss them.
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Noel answers your money questions
My partner and I own our home, and are both of pensionable age. We have around $200,000 in superannuation, and I have a steady job earning $65,000 a year. Do you think we could possibly qualify for a part age pension?
Eligibility for the age pension is tested under both an asset test and an income test, and the test which provides the lowest pension is the one Centrelink use. You would certainly qualify under the incomes test, because the cut-off point for the income test is $82,243 a year.
Your superannuation would be deemed to be earning $2740 a year, which when added to your salary would make your total income for eligibility purposes $67,740. Your age pension should be $279 a fortnight combined. It's well worth having.
My elderly mother has cash assets of $1,350,000. She is a self-funded retiree, with a Commonwealth Seniors Health Care Card. My brother-in-law says the ATO "deems" the interest she's earning on her money for income tax purposes - my understanding was deeming only applied to those on the age pension, not self-funded retirees - can you please clarify?
The deeming rules have nothing to do with the tax office. What the deeming rules do is provide a notional income which is applied by the government if you are income tested for income support payments, or hold a Commonwealth Seniors Health Card.
Obviously she is not in receipt of the age pension - the income test for the CSHC looks at adjusted taxable income, plus a deemed amount from account-based income streams.
Therefore, in this case the only relevant issue would be her adjustable taxable income which would be the income from her cash and other financial income producing assets.
There is a plethora of information concerning safe withdrawal rates from account based pensions but virtually nothing on at what frequency - fortnightly, monthly, 3, 6 or 12 monthly - it should be taken.
While personal circumstances obviously play into this, are there any financial aspects to be aware of regarding the frequency of withdrawing funds from an account based pension?
In theory, the longer you can delay the withdrawal of your funds, the more money you have in superannuation earning for you. Therefore, taking your pension annually in arrears should give you a little more in earnings inside your fund.
However, most retirees have their funds spread across cash and shares, with the pension coming from the cash component. In view of the present minuscule returns on cash I think the practical difference would be very small.
- Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: firstname.lastname@example.org