Further changes to super contributions in 2024-25
Couple weeks ago, I was talking about changes to superannuation in relation to concessional contributions. Those contributions are the most popular, especially while working, so no wonder that was a very popular topic. To learn more, read: “Concessional Contributions – What’s new?”
Today, I will be talking about the second type of contribution to super, which is non-concessional and what changes are to be introduced from 1st July 2024.
Therefore, I will cover the following:
- A very quick overview of what non-concessional contributions actually are,
- Benefits of non-concessional contributions
- Changes to be introduced for the new financial year 2024-25
1. What are non-concessional contributions
Non-concessional contributions to super refer to the voluntary contributions made to super from after-tax income or savings. Those are the contributions when you do not claim tax deductions, therefore, the full value of your contribution is being invested in the superannuation, unlike concessional contributions where 15% contribution tax is being charged on the balance contributed (up to allowable limits).
You can make non-concessional contributions from various sources, including personal savings, inheritance, proceeds from the sale of assets, or even gifts or financial wins.
2. What are the benefits of non-concessional contributions?
- Full balance of your contribution is being invested
as mentioned before, when making non-concessional contribution, there is no concessional tax being applied - Non-concessional contributions create your “tax-free” superannuation component
this is a very important factor for the estate planning, especially if beneficiaries of your super savings are going to be your financially independent children - Those contributions can really boost your retirement savings
By making additional contributions with after-tax income, you can speed up the growth of your super balance and potentially increase the amount you have available when you retire. - Flexibility of contributions
As those contributions are not structured like SG (employer contributions) or even salary sacrifice, you can make non-concessional contributions whenever you have spare savings, sell investments, received an inheritance or any other event that will provide you with extra lumpsum savings.
3. Changes to be introduced from 1st July 2024
Here is a table of the limits applied to non-concessional contributions over the years:
Over the years, the government started reducing our ability to make non-concessional contributions.
Considering that once those savings are moved to a pension, the tax-office will not see even $1 in tax paid from all pension funds, and there will be only more and more retirees with those tax-free pensions, no wonder that the government started getting worried and started reducing how much money we can contribute to super and then transfer to pensions.
There was a big reduction in contributions limit in 2017-18, from $180,000 a year prior down to $100,000.
From 2020-21 the limit has been increased in line with average weekly ordinary time earnings. But remember, if you pay more then the limit, you might have to pay extra tax. You can see from the table that in the current financial year 2023-24 the annual cap limit is $110,000.
From 1st July 2024 however, this limit is being increased up to $120,000.
What’s more, you might also be able to use the “bring-forward” strategy. If eligible, you might bring forward either 2 or even 3 years of non-concessional contributions, allowing you to make a contribution up to $360,000 in one go, subject to the total superannuation balance cap. And this is where contributions to super are becoming complex.
If you do not know what the bring-forward rule is, read: “Superannuation bring-forward contributions”. Good explanation of general rules and when the strategy can be considered, but keep in mind that this is an article created over 2 years ago, therefore updated rules and limits need to be considered before you proceed with any contributions.
If you were to consider making any big superannuation contributions, my sincere recommendation is to consult a financial planner specialising in super contributions, as it is easy to make very costly mistakes, and the ATO is watching this space and will penalise you for any excess contributions made.
If you are in this exact situation, please start planning long in advance. There should be no rush decisions, and you should allow plenty of time to choose your financial planner, to set the time for the meeting, to have your strategy plan drawn up for you and then to slowly start implementing it step by step as per recommendation.
This is what working with the financial planner is all about. Investing money and choosing investments in only a small part of financial planning advice, creation of the most appropriate strategy that includes your superannuation and retirement planning, together with tax planning and estate planning put together.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
