There’s a solution if you feel like you’ve missed the boat when it comes to building your retirement savings due to expenses or time-out raising kids, study or parents’ aged care.
You may be eligible to make a catch-up (or carry-forward) contribution greater than the annual cap if you haven’t fully used your concessional contributions cap in an earlier financial year since 1 July 2018. This could help you to save even more for retirement, while also managing your tax.
In this article, we look at what catch-up contributions are and the rules surrounding them.
Catch-up contributions explained
You can make up to $27,500 of concessional contributions in the current year into super. These can include salary sacrifice or personal contributions claimed as a tax deduction in your income tax return.
Along with the super contributions your employer makes on your behalf (currently 10% of your salary), these ‘concessional contributions’ are all counted towards the same $27,500 annual cap or limit.
Under the ‘catch-up contributions’ rules, if you haven’t used the concessional contribution cap in any year since 1 July 2018, you can make it up in one go or over a number of years. This means you could add a lot more into super than just $27,500, if you’re eligible.
It’s important to note, the maximum concessional contribution amount changes. For example, it was $25,000 from 2018-19 to 2020-21 but increased in 2021-22 to $27,500. As the catch-up rules began in 2018-19 so you can only go back to this point.
Catch-up contributions: case study examples
Here’s a few examples of how catch-up concessional contributions could benefit you.
Philippa has received a bonus and wants to contribute some of it to super.
As she hasn’t fully utilised her concessional cap each financial year since 1 July 2018 and meets the other eligibility requirements, she is able to make catch-up concessional contributions. She can do this by making a personal contribution to super up to the amount of any unused portion of the concessional contributions cap for those years and claiming a deduction for the amount in her tax return.
These contributions will be taxed at 15% when it enters her super account, which is a lot lower than the tax she would pay on her income.
Dorian is 62 and retired. Most of his income is generated from his pension and an investment property.
He decides to sell his investment property and receives a net capital gain of $125,000. This increases his taxable income to $150,000.
To reduce his taxable income, he decides to contribute some of the sale proceeds into super, using two years’ worth of unused concessional contributions for a total of $52,500 ($25,000 for 2019-20 and $27,500 for 2020-21).
After paying a 15% tax on his $52,500 super contribution, Dorian has reduced his overall tax by around $12,442.
Eligibility rules for catch up contributions
To make a catch-up contribution, there are specific conditions you need to meet:
- Your total super balance needs to be less than $500,000 on 30 June of the previous financial year
- You can only carry forward unused concessional contributions from 1 July 2018
- Unused cap amounts can only be carried forward for five years before they expire (ie. the earliest of the five years rolls off the carried forward amount)
If you’re 67 or over, you’ll generally need to meet (or be exempt from) the work test to make personal deductible contributions to your super.
Tip: while the work test will no longer apply from 1 July 2022 for salary sacrifice and personal (non-concessional) contributions, the work test will still need to be met if you’re aged 67-74 and wish to claim a tax deduction for a personal contribution.
Calculating your catch-up amount
Check your last reported balance for your super account/s with the ATO. This is available via the MyGov website. You need to ensure that your total super balance was under $500,000 as at the previous 30 June.
You then need to work out the amount you may have available to use from the relevant year’s concessional contribution cap, after allowing for any other concessional contributions that have or may be made on your behalf. This includes employer or personal deductible contributions already made. It is also important to take into account future employer contributions you may receive during the financial year, including contributions calculated on bonus entitlements you may become entitled to (for example).
Important things to consider
Seek help from a professional
Rules around super can be complicated, especially when it comes to catch-up contributions. If you value the experience of experts in other aspects of your life, don't discount it when it comes to managing your life savings.
Financial advisers can also help you with other aspects of your financial life too—savings, insurance, debt—while keeping you on track to achieve your goals.
More importantly, they can answer questions like:
- What age can I stop working and retire?
- What strategies can I use to build my wealth?
- How can I ensure my wealth is transferred to my children?
Ready to make a catch-up contribution?
- What is the retirement age in Australia?
- How much do you need to retire?
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at February 2022 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.