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If you want to help your super fund to grow then you could consider making lump sum contributions.
It could be from money you’ve earned from an investment or just extra from money you have saved. Either way, making a one-off, occasional or a regular payment is one of several ways you can help boost your super balance.
These contributions are known as non-concessional contributions because they usually come from an after-tax source.
These are in addition to any contribution your employer makes to your super, and any you may already contribute in salary sacrificing from your pre-tax earnings.
But there are limits as to how much extra you can contribute and there are possible tax implications you should be aware of.
Can you claim a tax deduction for extra super contributions?
The Australian Taxation Office says you may be able to claim a tax deduction for any contribution to your super from your after-tax income. There are some eligibility criteria you must meet before you can claim a tax deduction, so it might be a good idea to check with the ATO to see if they apply to you.
At the moment, if aged 67 to 74 you may need to meet the federal government Work Test to make a contribution to your super and claim a tax deduction. For that you may have to work at least 40 hours during a consecutive 30 day period during a financial year. This test will be scrapped from July 2022.
How much extra can you contribute to your super?
From 1 July 2021 the maximum you are allowed to make in non-concessional contributions to your super is capped at $110,000 a year.
But how much you are actually allowed to contribute depends on a number of factors such as your age and how much you already have in your fund. You may even be able to contribute above that cap by using what the ATO refers to as bring-forward arrangements.
The rules can be complicated and subject to change so it’s a good idea to check with the ATO to see what conditions apply to you. You may also consider seeking some independent financial advice, too.
Your super fund may have its own restrictions on contributions so you need to check with it first. Before you can make any additional contribution you must notify your super fund and get its approval, using the notice of intent form available from the ATO.
But there’s a limit to how much you can contribute to your super
You need to make sure you don’t exceed any non-concessional contribution cap that applies to you. If you do, you could end up paying extra tax. The ATO advises you can keep track of your super fund via the MyGov online portal, especially if you have several funds.
If you do have more than one fund, then the total of all non-concessional contributions made to all your funds counts towards your cap.
You need to make sure you don’t exceed any concessional contributions cap too, such as through any salary sacrificing, as that will then eat into your non-concessional contributions cap.
Making a lump sum contribution to your super after downsizing your home
Another way to add to your super fund is to make a one-off contribution of up to $300,000 from the sale of your home. But again there are conditions you need to meet before you can make such a contribution. At the moment the scheme is aimed at people aged 65 and over but that is due to drop to 60 from 1 July, 2022.
The scheme is aimed at people looking to downsize their home and any contribution can only come from the proceeds of the sale of your home.
The good news is that any contribution here does not count towards your non-concessional contributions cap. There are still tax implications you need to consider.
The key thing to note with any downsizing contributions is that you must have lived and owned the home for a minimum of 10 years. So if you are close to retiring and are considering moving as well as making any lump sum contribution, you may need to seek some independent advice.
Regardless of how much you’re contributing to your super balance, it’s a good idea to make sure you’re with the right fund for your personal circumstances. You can compare funds and find the right one for you with Canstar.
Compare Super Funds with Canstar
The comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Cover image source: Suntezza/Shutterstock.com
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