How to Maximise Your Super with Non-Concessional Contributions

Key Differences from Concessional Contributions

It helps to know the difference between concessional and non-concessional contributions. Concessional contributions are made from your pre-tax income, such as employer contributions (including the Super Guarantee), salary sacrifice, and personal contributions for which you claim a tax deduction. These concessional super contributions are taxed at 15% (the contributions tax) when they enter your super fund, which is often lower than your marginal tax rate. The concessional contributions cap for 2024-25 is $30,000.

Non concessional contributions, on the other hand, are made from your after-tax pay. Since you have already paid tax on these after-tax contributions, your super fund does not tax them again. This distinction gives you options for planning your super contributions based on your income, tax return, and retirement goals.

The Benefits of Making Non-Concessional Contributions

Adding after tax contributions to your super account can help your retirement savings grow, thanks to investment returns and compound interest. Even small voluntary contributions can add up over the years, helping you build a more comfortable retirement and more choices for your future retirement benefits.

Non concessional super contributions offer flexibility. You can make these extra contributions at any time-regularly or as a lump sum when you receive extra money, such as a bonus, inheritance, or proceeds from selling an asset. This flexibility lets you adjust your super contributions to suit your situation.

Although you have already paid tax on non-concessional contributions, there are still tax advantages. Super funds generally pay 15% tax on investment earnings, which is usually less than what you would pay on earnings outside super. Once you turn 60 and start an income stream from your super, both the investment earnings and the pension income are usually tax-free. This tax treatment helps you make the most of your after-tax super contributions for retirement.

Navigating the Bring-Forward Rule

The bring forward rule lets eligible people make larger non concessional contributions by using up to three years’ worth of their contribution caps in one go. This can be helpful if you receive extra money, such as from selling an asset and want to add a large amount to your super account in a single financial year.

How the bring forward arrangement works depends on your total super balance at the end of the previous financial year. If your balance is less than $1.9 million, you may be able to contribute up to $360,000 at once by bringing forward two extra years of your non concessional contributions cap. The bring forward period then lasts for three financial years, during which you cannot make further non concessional contributions above the total cap.

You do not need to apply for the bring forward arrangement-it is triggered automatically if your non concessional contributions exceed the annual cap of $120,000. This means you need to plan your after-tax contributions carefully, as making a large personal contribution can limit your ability to make more non concessional contributions in the next two years.

Eligibility and Limitations

Not everyone can use the bring forward rule. Your eligibility depends on your age and your total super balance. You must be under 75 at the start of the financial year to use the bring forward arrangement. If your total super balance is $1.9 million or more as of 30 June in the previous financial year, your non concessional contributions cap is nil, so you cannot make non concessional contributions that year.

If your balance is close to the $1.9 million threshold, it may be wise to make extra contributions before you reach that limit. Planning your super contributions and timing them well can help you stay within the rules and avoid paying extra tax on excess contributions.

Strategic Approaches for Different Life Stages

Your approach to non-concessional contributions may change as you move through different stages of life. Each stage offers different opportunities to grow your super account.

If you are younger and have many years until retirement, making regular after-tax contributions can be powerful due to compounding. Even modest voluntary contributions can grow over time. You may also be eligible for government co contributions if you are a low- or middle-income earner. For the 2024-25 financial year, if your total income is less than $45,400 and you make a $1,000 personal contribution, you could receive the maximum government co contribution of $500.

As you approach retirement, your focus may shift to making the most of your contribution caps while you are still eligible. If you are between 55 and 75 and considering downsizing your home, the downsizer contribution scheme allows you to add up to $300,000 (or $600,000 for a couple) from the sale of your home to your super fund, without affecting your non concessional contributions cap. This can be a useful way to boost your retirement savings in the years before you retire.

Spouse Contributions and Other Strategies

Making spouse contributions is another way to use non concessional contributions to your advantage, especially if your partner has a lower income or has taken time out of the workforce. Spouse contributions are after tax contributions made from your take home pay to your partner’s super account. These count towards your partner’s non concessional contributions cap and can help even out your super balances.

If your spouse’s income is $37,000 or less, you may be eligible for a tax offset of up to 18% on the first $3,000 of spouse contributions, giving you a maximum tax offset of $540. The offset reduces as your spouse’s income increases and cuts out at $40,000. This strategy not only helps your combined retirement savings but can also reduce the tax you pay.

Government co contributions are another way to boost your super account. If you are a low- or middle-income earner and make personal super contributions, the government may add up to $500 to your account. The amount depends on your income and how much you contribute, with the maximum available to those earning less than $45,400 who make at least $1,000 in after tax contributions in a financial year.

Timing and Compliance Considerations

The timing of your non concessional super contributions can affect how much you can contribute and whether you pay extra tax. It is important to keep track of all your super contributions during the financial year to make sure you do not exceed your contribution caps. Going over the non-concessional contributions cap can mean you pay extra tax on the excess contributions.

Your eligibility to make non concessional contributions depends on your total super balance as of 30 June in the previous financial year. This means your contribution strategy for the current financial year should be based on your balance at the end of the last financial year, not your current balance.

There are also age restrictions. If you are 75 or older, you generally cannot make non concessional contributions to your super fund. However, the downsizer contribution scheme is an exception, letting eligible people make large contributions even after age 75.

Conclusion

Maximising your super with non-concessional contributions means understanding the rules, planning your super contributions, and considering your personal circumstances. The current non concessional contributions cap of $120,000 per year, along with strategies like the bring forward arrangement, spouse contributions, and government co contributions, gives you several ways to grow your retirement savings. By carefully timing your after-tax contributions, checking your total super balance, and adjusting your approach as your situation changes, you can make the most of these opportunities.

Superannuation rules can change, and the right approach depends on your goals and financial situation. Reviewing your super strategy regularly and seeking advice can help you make informed decisions and avoid paying extra tax. Taking action now with your non concessional contributions can help you enjoy greater retirement benefits and peace of mind in the future.