Hello Chasers,
People worldwide are living longer. Today most people can expect to live into their sixties and beyond. Every country in the world is experiencing growth in both the size and the proportion of older persons in the population. By 2030, 1 in 6 people in the world will be aged 60 years or over.
Human life expectancy is on the rise. Whereas the average person born in 1960 could expect to live to 52.5 years of age, someone born today has an average life expectancy between 79 and 83 years of age.
One of retirees’ biggest regrets is not setting enough money aside for their retirement. A recent survey showed that 59% of retirees say they regret not saving more, and 60% say they should have started saving earlier.
Saving more and putting it into your superannuation fund is a great start, especially if you already have 12% of the value of your salary being contributed by your employer.
But there is a catch!
The ATO sets a maximum general contribution level each year, called your concessional cap before your contributions are taxed at a higher rate.
As of July 1, 2024, the concessional contributions cap is $30,000.
So, if you have a salary of $100,000 and your employer contributes $12,000 to your superannuation fund, there is a shortfall of $18,000 that you could still contribute. This could be from your savings and claimed as a personal tax deduction on your income tax return or from a salary sacrifice arrangement with your employer who could drop your gross salary down to $82,000 from $100,000 in this example.
But there is a simple way to ensure you have a significant retirement balance to help sustain you through your golden years.
A lesser known, yet potentially powerful, option within the Australian superannuation system is the ability to carry forward unused concessional contributions.
This rule can be a game-changer for many Australians looking to boost their retirement savings.
The Australian Taxation Office allows you to carry forward any unused concessional contributions cap amounts from up to 5 previous years. This can be a lifesaver to increase your contribution caps in later years and potentially reduce your taxable income.
You’re eligible if you meet two criteria:
- You have a total super balance of less than $500,000 at 30 June of the previous financial year.
- You have unused concessional contributions cap amounts from up to 5 previous years.
To check what your personal balance could be, go to your MyGov account and look under the superannuation tab for ‘carry-forward concessional contributions”.
How does it work?
OK, let’s say that last year you couldn’t max out your concessional contributions cap due to financial constraints.
The good news is, under this rule, you haven’t lost that balance remaining from last year’s concessional cap.
You can use that unused amount in future years when you’re in a better financial position to contribute more to your super.
Think of it as a superannuation contribution rollover benefit.
If last year’s concessional cap was $27,500, but you only managed to contribute $15,000, you can carry forward the unused $12,500 to boost your contributions in the coming years.
The ability to carry forward your unused contributions balance for five years is a very generous concession that should be taken advantage of whenever possible.
This can be particularly useful for people who have irregular income or those who take career breaks.
You can make up for the years you contributed less by topping up when your financial situation improves.
And here’s an important tip: To take full advantage, you’ll need to keep track of your total super balance and any unused concessional contributions.
This info is crucial as it determines your eligibility for carrying forward the unused amounts, but also to ensure that you don’t exceed the cap after using up all of the unused balance, otherwise, you may need to pay extra tax!
Also, it’s worth noting that these unused amounts are only carried forward for up to five years. For example, a 2019–20 unused cap amount that is not used by the end of 2024–25 will expire, and lost forever!
The oldest available unused cap amounts are carried forward first. For example, unused cap amounts from 2019–20 would be used to increase your cap first before unused cap amounts from 2020–21.
Unused concessional cap amounts are applied automatically once you exceed the cap in any year.
So, don’t miss out on this opportunity to make the most of your super contributions.
We can avoid one of retirees’ biggest regrets by not setting enough money aside for retirement if we create a plan.
A plan to maximise our concessional cap for superannuation contributions each year and take advantage of any unused carry-forward concessional contributions.
The earlier this plan is started, the greater the rewards of having significantly better retirement benefits in the future.
The key is to start that plan, but when you start it is up to you!
If you would like more information about how to maximise your retirement benefits, call our office today on 03-55612643 to discuss your options!
Have a great day!
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