Non-concessional Contributions

One of the single best ways to build your super fund for retirement is through non-concessional contributions; that is with funds you have after tax.

Now this does require a certain shift in thinking for a lot of people as many of us are so used to the philosophy of spending everything we earn and even living on credit.

Most people can see the logic and gain in streaming some before tax funds through to their super fund as it reduces their taxable income. But the thought of voluntarily putting in after tax funds is less inviting, until you think of it like this.

You’re effectively placing these funds into a high yield managed fund where the earnings are only taxed up to a 15% rate rather than the up to 47% (inc Medicare 2014/2015 tax rates) for the current highest marginal tax rate outside super.

So what’s the maximum capped amount you can contribute in any one year if you’re looking at this option? Well after an increase in 2014/15 it’s now a very healthy $180,000, and that’s not all.

If you’re under 65 years of age you can bring forward up to 2 years’ of non-concessional contributions which can bring your total up to $540,000, now we’re talkin’.

Now there are of course a few pit falls to look out for. The first is if you inadvertently contribute more than your capped amount. The good news is that you do have the opportunity to withdraw excess funds and avoid them being taxed at a 47% rate. However if you leave them in your super account you can face this harsh penalty.

The other thing is your super fund must have your Tax File Number in order for you to make non-concessional contributions.

An often asked question in relation to this form of contribution is: What if I miss making contributions for a couple of years, can I then make them up the equivalent of $180,000 a year? Unfortunately not, after tax contributions are a bit like a healthy libido, it’s a case of use it or lose it. Additionally the “bring forward” rule cannot be used retrospectively.

To understand why this contribution option has become more attractive recently have a glance at the data on capped amounts below.

Non-concessional contributions cap*

Income year

Cap

Bring-forward rule

2014/2015

$180,000

$540,000

2013/2014

$150,000

$450,000

2012/2013

$150,000

$450,000

2011/2012

$150,000

$450,000

2010/2011

$150,000

$450,000

2009/2010

$150,000

$450,000

2008/2009

$150,000

$450,000

Now if you think this form of super contribution may be for you, make sure you’re across the excess contributions legislation and also that this is a tax effective financial tool for your personal situation. It’s also probably best to talk to your accountant as well.

If you decide that you are looking to make non-concessional contributions and don’t know how, call Rate Detective and we can assist with general information.

Published on June 6-th, 2015 in Superannuation
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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