Is EOFY the best time to shuffle superannuation?
While the end of the financial year can be a busy time professionally and personally, it is also a good time to take stock of superannuation and formulate retirement savings strategies for the year ahead.
The end of the financial year is often a mad dash for finance professionals. For many, the month of June is the end of the year professionally, and with that can come pressure to complete tasks, meet targets and finalise projects.
In one’s private life, there is also the realisation of the need to complete the tax return and plan for the new financial year.
However, the month of June also offers the best time to ensure that retirement savings are properly optimised, with the new financial year clearing the slate for a number of limits and changes relating to superannuation.
It always helps to be aware of changes relating to superannuation early, before it is too late to use them. However, it is also important to check with your financial adviser if you are uncertain about whether they apply to your particular situation.
Australians are able to make A$25,000 per year in concessional (pre-tax) contributions. On 1 July, you get to start on next year’s amount, which will increase to A$27,500. Concessional contributions consist of the total in contributions that you make, which are either deductible or never counted towards your taxable income in the first place.
These include the superannuation guarantee (SG) contributions that your employer makes, any salary-sacrificed amounts, and any other contributions you have made for which you would like to claim a tax deduction.
You can also claim any unused concessional amounts from previous years, going back to the 2018-19 financial year, if your total superannuation balance is less than A$500,000.
It is a good idea at this time of year to check the total in concessional contributions that your fund has received. If you have not quite reached your concessional contributions limit, this gives you the opportunity to add more.
However, don’t forget to notify your fund in the new year that you would like to claim a tax deduction.
If you belong to a defined benefit fund, contact them directly and ask to confirm your total, as it might not be the same as what is shown on your latest statement. Also, don’t forget to check all your superannuation funds if you are contributing to more than one.
Top trap: Forgetting about SG or salary-sacrificed amounts that your employer is likely to contribute before the end of the financial year.
Have you already hit your concessional contribution cap, but have more funds that you need to contribute towards your superannuation? You can also make contributions non-concessionally, or after tax, for up to A$100,000 in each financial year.
The end of the year, however, offers you an opportunity to enlarge this amount, since you will be able to also start contributing towards the 2021-2022 financial year total from 1 July 2021. The good news is that the limit to non-concessional contributions is also increasing to A$110,000.
If you are aged under 65, you may be able to bring forward contributions for the next two years, but be aware that you would not be able to contribute anything next year or the year after.
Top trap: Triggering your bring-forward amount in this financial year if there is more that you would like to contribute next year.
The transfer balance cap, which restricts how much a retiree can transfer into the pension phase of superannuation (exempt from tax on earnings), will increase from A$1.6 million to A$1.7 million on 1 July 2021. Anything more than the cap cannot enter the pension phase.
Australians who are retiring with larger superannuation amounts may wish to consider deferring commencing their retirement income stream until after 30 June if they need to use that extra A$100,000.
The rules do not allow access to any of these funds if a retiree has already used their whole personal transfer balance cap prior to 1 July 2021.
This may also present issues if you already have some money in the pension phase, since any amounts you have contributed, less any commutations (or withdrawals, which are not pension payments), are counted towards your personal transfer balance cap.
Top trap: Not checking that you have already had a transfer balance account with the Australian Taxation Office after 1 July 2017.
Australians who are already in the pension phase would be aware that the minimum pension drawdown requirements have been reduced by half for the 2019-2020 and 2020-2021 financial years, due to adverse market conditions brought about by the COVID-19 pandemic.
This allowed Australians drawing the minimum from their retirement income streams to reduce their drawdowns further.
The drawdown minimum rates will go back to their normal amounts on 1 July 2021. Members of Australian Prudential Regulation Authority-regulated funds who are drawing the minimum will not normally need to take any action, as their fund will automatically make the adjustment.
However, members of self-managed super funds should look at their arrangements and see what they need to do to comply with the higher rates in the new financial year.
This is also an opportunity for Australians to review how their superannuation is invested in the drawdown phase – for example, whether more funds should be moved.
Top trap: Not considering whether fewer assets in your portfolio need to be sold down now, in order to have the cash available when the next pension payment is to be made.
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