Money
5 game-changing super moves to make in the lead up to retirement
It’s never too late to maximise your super, in fact some major opportunities only kick in close to retirement, as Nicole Pedersen-McKinnon points out.
By Nicole Pedersen-McKinnon
So, you’re eyeing retirement with the kind of exquisite anticipation of a molten chocolate pudding.
Okay, maybe not retirement itself but finally getting your mitts on your retirement money.
You can do this once you permanently give up work after age 60 or, even if you don’t, after age 65. And you are allowed to withdraw your whole balance as a lump sum, income stream or combination of the two – up to you.
But here’s the thing: just prior to this is the very best time to make your super stash much bigger…. when there are just a few years left until you can get it is when you can best work the system to maximise it.
There are even some ingenious ways after.
With so many advantages to holding investments in super, particularly in income streams, the rush to build your balance should be on!
Let’s talk about your 5 biggest opportunities.
Max super move 1: Salary sacrifice with mop-up contributions
When you salary sacrifice, your contributions go in before income tax and you pay only the super contributions tax of 15 percent.
Instead, you could pay a marginal income tax rate of up to 47 percent including the Medicare Levy Surcharge.
When you were younger, perhaps with children, putting extra money into super was probably, well, a pipe dream.
But with some financial responsibilities discharged, and just a few years until that retirement dream, now might be the time.
What you can put in before tax via what are called concessional contributions is limited but the very good news is that you can catch up on allowances you might have left unused for the past 5 years.
Those allowances differ but in the 2024-25 tax year were $30,000, $27,500 in the previous 3 tax years, and $25,000 in the one before that. (Note that these limits also include any contributions your employer has made on your behalf and exceeding them will incur a steep tax penalty.)
There is a caveat on this one though (there usually is!): You need to have a total super balance of less than $500,000 at 30 June of the previous financial year to avail yourself of the mop-up opportunity.
To see your precise available ‘carry-forward contribution’, sign in at myGov then select Super, Information, then Carry-forward concessional contributions.
Max super move 2: Convert taxable investment profits to before-tax
In the immortal words of Keanu Reeves’ character Neo in the Matrix, you “need an exit”. Worried financial advisers speak to me often about pre-retirees who are wealth accumulators outside of super throughout their working lives, with no strategy for actually realising that wealth.
Think direct shares and investment properties.
At a certain point, unless you plan to live off the income forever (on which you may incur tax), it may be smarter to sell… and the thing is that doing so while you can still contribute to super means you can also cut the capital gains tax on your profits.
Let me back up. Normally capital gains are added to your assessable income (at a rate of 50% if you have held the asset for longer than 12 months) and taxed at normal marginal income tax rates along with the rest of your earnings.
However, if you contribute your capital gains to super and claim a tax deduction, you reduce your gain by that amount.
You can contribute to super until age 67 but then all the way up to 75 if you meet the work test (if you're turning 75, you must make the contribution no more than 28 days following the end of the month you turn 75).
The work test is not even that stringent: you just need to have been gainfully employed for 40 hours over 30 consecutive days… but only once during the financial year in which you wish to make the contribution.
So, at any age and between 67 and 75 provided you meet the work test, you make a contribution to super and then essentially switch it from after tax to before tax.
You accomplish this simply by notifying your super fund that you wish to claim a deduction with a so-called ‘intent to claim’ form... and it becomes a personal deductible contribution that counts in your concessional limit.
Just remember that concessional contributions to super attract a 15% super contribution tax – or 30% if these super contributions plus your income is above $250,000 for the year, under what’s known as the Division 293 tax penalty.
This needs to be below the marginal tax rate that would apply to your profit, for the technique to be effective.
And how much profit you can shelter in this way is subject to the concessional contribution limits above, including the 5-year mop-up rules.
Which means that, if you have made no contributions for the past 5 years (remembering employer contributions count in these limits), you could pay in and claim $137,500 ($30,000 for the 2024-25 tax year, plus $27,500 for the previous 3 years, plus another $25,000 for the year before that). (Just don’t forget, you need a balance under $500,000 at the end of the previous tax year to take advantage of this.)
So, you could offset your investment profit by a significant amount.
Just be sure to make the super contribution in the same financial year that you made the gain.
Max super move 3: the transition to retirement pension loop
After the age of 60, there is a fabulous way to create a lucrative super savings loop.
The transition to retirement pension was introduced to allow people to phase down their work hours but still keep up their income.
It lets anyone over 60 withdraw between 4% and 10% of their funds a year, tax-free.
And as soon as this was introduced, enterprising Aussies realised they could use the income top-up to start making before-tax salary sacrifice contributions, without any drop in their take-home pay.
It’s a great approach if you would like to give your super a last-minute boost but don’t have the spare cash.
You simply draw an income stream from money you place in a TTR pension and grow your retirement savings via salary sacrificing the same amount into your regular super accumulation account.
Be aware that you can’t commute the pension back into a lump sum so don’t commit any money you will want to access all at once, at a later date. And to slightly reduce what was initially a huge tax perk, a 15 percent tax on investment earning within a TTR pension was reinstated in 2017; this is the same tax as in accumulation phase.
But the pension income itself is tax-free, which gives a big benefit.
And – as explained above – you can still mop up with a salary sacrifice (or personal deductible contributions), up to 5 years of unused concessional contributions limits (provided your balance on the previous 30 June was under $500,000).
Max super move 4: the recontribution strategy
There is much merit to what is called the recontribution strategy.
What this does – over time – is remove tax liability from your beneficiaries and so keep your money in the (most likely) family.
This is because concessional contributions (as described above) are heavily taxed when they go to non-tax dependent heirs.
We are talking 17% or even 32% tax, including the Medicare levy. So almost up to a third of your ‘hard-earned’.
But what you can do, as soon as you are eligible, is start to withdraw money from super – if you’re still working but 60-plus, you can do so with the TTR pension (as above).
Then you simply put it straight back in after tax – adhering to different annual limits – so it will ultimately be tax-free.
As non-concessional contributions – and therefore not taxable when you die – you are allowed to pay in $120,000 a year in the 2024-25 financial year, potentially brought forward twice, too.
Or you are if your total super balance was below a ceiling at the end of the last financial year of $1.9 million (what’s known as the transfer balance cap). If your balance was over this amount, you can’t make any non-concessional contributions this year.
But if you’re eligible, the ‘bring forward rule’ means you could pay in triple the annual limit in one year… to a total of $360,000 (in reality, it should be even more as the annual non-concessional contributions limit will be reviewed annually to remain in line with average weekly ordinary time earnings or AWOTE.)
Max super move 5: downsize to upsize
Are you enjoying a really big home but have limited money to go out and enjoy yourself? There is a relatively new avenue to downsize and shelter the proceeds.
Under an initiative to try and unlock some housing supply, you are able to squirrel away into super $300,000 of the sale proceeds of your primary residence (provided you have owned it for 10 years or more).
And this can be after retirement (without any work test)… no matter. There is no upper age limit either.
The only limit is that these contributions can only be made if you are aged 55 years or more from January 2023 (before January 2023, it was older).
What counts is your age when you make the contribution.
And you must make the contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement.
The really beautiful thing about these ‘after-tax’ downsizer contributions is that they don’t count towards your non-concessional contribution caps (even if your total super balance has breached the usual $1.9 million limit).
You can’t claim a tax deduction for them and they will come out of your fund tax-free at the end of your life, no matter whom you bequeath them to.
So, with a downsizer contribution and the above non-concessional limits with the bring-forward provision, you could add another $660,000 to your super.
And if you were a co-owning couple, you can times that allowance by two.
Really the super system is geared towards downsizers… might it be time to switch the family home for a low-effort, lifestyle-enhancing apartment?
This article reflects the opinions and experiences of the author and does not necessarily reflect the views of Citro. It contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs. All care has been taken to check statistics and figures stated in this article as at the time of writing. All statistics or figures should be verified.
Image: iStock/RgStudio
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