Maximising personal non-concessional contributions (NCCs) is a great way to build up retirement savings in a tax-effective environment, minimise the tax payable on super death benefits, and equalise super balances between spouses. However, there are some tips and traps to consider when making NCCs.
Firstly, NCCs are limited by your NCCs cap, which is determined by various factors. It is important to check your total super balance (TSB) before making NCCs to ensure they do not breach their cap. The current cap is $110,000 per year, and you may be able to bring forward up to three years’ worth of NCCs, allowing them to contribute up to $330,000 in a single financial year.
You may wish to maximise their NCCs before the end of the financial year should keep the following reminders in mind to avoid breaching their cap or triggering the bring-forward NCC cap inadvertently.
Reminder 1: Age Limit to Trigger the Bring-Forward NCC Cap
You must be under age 75 on 1 July of the financial year to access the bring-forward NCC cap. If you turn 75 in the middle of the next financial year, the following year will be the last financial year you can use the bring-forward NCCs cap. The super contribution must be made on or before 28 days after the end of the month when you turn 75.
To maximise their NCCs, those in this situation may consider making NCCs using the standard NCC cap of up to $110,000 in the current financial year and the bring-forward NCC cap of up to $330,000 in the next financial year, provided their TSB allows them to do so.
Reminder 2: Exceeding the NCCs Cap
If you exceed your NCCs cap, you may face a penalty tax of 47% on the excess amount. To avoid this, it is essential to check their TSB before making any contributions.
Reminder 3: The Impact of the “Withdrawal and Re-contribution” Strategy
The “withdrawal and re-contribution” strategy can be an effective way to minimise the tax payable on super death benefits by a non-tax dependant, equalise super balances between spouses, or maximise Centrelink age pension payments. However, it is important to be aware of the potential impact of this strategy on your TSB and the ability to make future contributions.
In conclusion, maximising personal non-concessional contributions can be an effective way to build retirement savings in a tax-effective environment, minimise the tax payable on super death benefits, equalise super balances between spouses, and maximise Centrelink age pension payments. However, it is essential to keep the above tips and traps in mind to ensure that you do not breach their NCCs cap or trigger the bring-forward NCC cap inadvertently.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
