Maximising the power of the low tax/no-tax superannuation environment – Downsize!
As Australians approach retirement, managing superannuation becomes crucial to ensuring long-term financial security. One strategy that assists is the downsizer contribution. A valuable tool for those aged 55 and overlooking to boost their super balance. When combined with non-concessional contributions, it offers a unique opportunity for eligible individuals to significantly increase their retirement savings.
What is the Downsizer Contribution Strategy?
Introduced in 2018, the downsizer contribution allows Australians to contribute up to $300,000 ($600,000 per couple) from the sale of their home into their super fund. Importantly, this contribution is not restricted by the usual age limits (67 for concessional or 75 for non-concessional contributions (NCCs) or the $2 million total super balance.
The downsizer strategy offers a solution for those already retired or those looking to transition into retirement to increase their super without being subject to regular contribution limits. Even if you’ve reached the super balance cap or are no longer working, this strategy provides a way to make large contributions grow within the low tax/no-tax superannuation environment.
A downsizer contribution may be made where you’ve sold your home to buy a bigger one, if in fact you buy another property at all – you could decide to rent, move into an existing holiday home, or into aged care.
Combining Downsizer Contributions with Non-Concessional Contributions
The power of the downsizer strategy can be amplified when used alongside NCCs. NCCs are after-tax contributions individuals can make to super; up to $120,000 annually or $360,000 under the bring-forward rule (for those under 75).
Here’s how this can work: If you and your spouse sell your home, you could each contribute $300,000 from the sale proceeds under the downsizer contribution. In addition, you could make further NCCs, allowing a potential injection of up to $660,000 per person ($300,000 downsizer + $360,000 NCC) into super in a single year.
By combining both strategies, you can significantly boost your retirement savings, all within a low tax/no-tax superannuation environment. This combination is particularly valuable for those looking to enhance their super balance quickly as they approach retirement.
Key considerations
You or your spouse must have owned the home for at least 10 years and have lived in the home as your main residence at some point during that time to qualify.
While the downsizer contribution is attractive, it’s essential to be mindful of the 90-day window for contributing after receiving the proceeds from selling your home (settlement). Missing this deadline may result in the loss of this opportunity.
The value of professional advice
While the downsizer contribution strategy offers significant advantages, it may not suit everyone. Understanding how it aligns with your goals and retirement plans is crucial. Seeking expert financial advice will ensure you make informed decisions and fully benefit from these opportunities.
If you’re considering downsizing or looking to maximise your super contributions, don’t wait – take action now to safeguard your future. By developing a tailored strategy, you can make the most of these powerful tools and secure your financial future.
Tom Hartvigsen is an Authorised Representative (no 000470576) of Ord Minnett Ltd ABN 86 002 733 048, AFS licence 237121. This article
contains general financial advice only. Tom can be reached on 07-5231 9966 or thartvigsen@ords.com.au.
