We've all had plenty to deal with this year, so it's no surprise that carry-forward super contributions may have passed under the radar of many pre-retirees.
For much of our working lives, retirement seems a long way off. But in the blink of an eye, we can find ourselves in our mid-50s with insufficient super for our ideal retirement lifestyle. The solution can be catch-up super contributions. By way of background, 'concessional', super contributions are limited to $25,000 annually. This includes your employer's compulsory super contributions typically set at 9.5 per cent of your gross salary.
For many workers, the bosses' super contributions will come in below the $25,000 yearly limit. When that happens, you may be able to claim a tax break by contributing the difference to super out of your own pocket.
As a guide, let's say Nicky's employer contributes $10,000 to her super this financial year. That means she can potentially claim a tax deduction for up to $15,000 ($25,000 less $10,000) that she adds to super from her own money.
It can be a great way to grow your super while saving on tax today. But to really fast-track your super balance, carry-forward contributions can come in handy. These let you make use of any unused concessional super contributions from previous years as long as you have less than $500,000 in super at the start of each financial year.
We'll say for instance that last financial year, Bill's boss contributed $15,000 to Bill's super fund - that's $10,000 less than the annual limit. Bill was strapped for cash and so didn't add any extra to his super. But he can carry forward that unused $10,000 to the current financial year.
If Bill's employer once again contributes $15,000 to Bill's super in 2020/21, Bill can potentially make a concessional super contribution of $20,000 this financial year - comprised of a carry-forward contribution of $10,000 from last year, plus $10,000 from 2020/21.
Sure, not everyone has that sort of money sitting around. But if you've sold an investment property for a capital gain, or you've earned a decent work bonus or received an inheritance, it is worth thinking about making catch-up super contributions, especially if you're in the pre-retirement period.
You are able to carry forward unused concessional contributions from 1 July 2018, so you could have several years' worth of these contributions to call on - but they can only be carried forward for a maximum of five years. It is worth talking to your tax adviser to see if carry-forward contributions could be the solution that lets you play catch-up with your retirement savings.