I have had three calls this week on the subject of making contributions for people who turned 65 this year and want to make non-concessional (after tax) contributions to their funds. I have had to tell one to reject the contribution already made. one to go do some work and the other to relax. The lessons to learn are; do not listen to friends, don’t rush in and seek professional advice from your accountant, financial planner or if you are really smart a SMSF Specialist Advisor™.
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- If you are 64 then you can still make a contribution of up to the $300,000 max up to June 30th as long as long as you have not triggered your “bring forward” cap previously or exceeded your Total Super Balance Cap.
- If you have turned 65 this year already then you can still make a contribution of up to the $300,000 max up to June 30th as long as you meet the work test this year (40 hours in 30 days) or if you meet the criteria for the Work Test Exemption which applies from 1 July 2019. Again you must not have exceeded your Total Super Balance Cap
- If you have turned 65 this year already and have not met the work test yet, then you cannot make a contribution until after you meet the work test this year (40 hours in 30 days).
So here is how each of my callers found my advice essential to making their decision.
Client 1
He turned 65 in January 2018 and had fully retired but made a large contribution on the basis he would be managing their son’s business for 2 weeks in June 2018 and would meet the work test easily. As he had not met the test at the time of contribution I had to tell him as SMSF Trustee, he had to reject the contribution and return the funds to his personal account. They can contribute the funds in late June after meeting the work test.
Client 2
He is fully retired and turned 65 in March and at least called me before making the contribution. He has not met the work test yet but has an offer of part-time work in the “Big Green Shed”. Great way of meeting the 40 hours in 30 day Work Test and I personally would probably pay them to work there as I spend so much time and money in there already.
Client 3
She is still working but turns 65 next week and sent through an urgent request to sell down shares in her personal name and so I called to ask why and “her friend had told her she could not use the bring forward rule after her 65th birthday.” So she had panicked and decided to sell down what are excellent shares but with huge capital gains. I had to tell her to relax and take a breath! We have a term deposit maturing in the May and can use that to make the contribution and avoid the estimated $300,000 CGT on the sale of the shares. As she running her own business, she has met the work test and can make her $300,000 contribution anytime up to June 30th 2020 as long as she does not exceed her Total Super Balance cap..
So here is a breakdown of the specific contribution rules applying at various ages.
If you turn 65 in a financial year the question of whether you are able to make a contribution to superannuation depends on:
• the amount you wish to contribute;
• whether you wish to claim a tax deduction for all or some of the contribution;
• whether you need to meet a work test during the year;
• whether you are under your Total Super Balance Cap.
Here are some tables that put it all together.
Table 1: Non-concessional Contributions
| Age at the beginning of the financial year | Work test or Work Test Exemption to contribute? | Maximum non-concessional contribution without penalty | ||
| Less than 64 | No | As long as you have room in your Ttoal Super Balance cap, $100,000 standard non-concessional contribution; $300,000 two year bring forward rule is triggered if greater than $100,000 has been contributed in year 1. | ||
| 64 | Only required if age 65 when contributing | As long as you have room in your Ttoal Super Balance cap, up to $300,000 if two year bring forward rule is triggered. | ||
| 65 and up to the person’s 75th birthday* | Yes | As long as you have room in your Ttoal Super Balance cap, $100,000 standard non-concessional contribution. |
Table 2: Personal Concessional Contributions*Once a person reaches 75 they can contribute up until 28 days after the month in which they turn 75.
| Age at the beginning of the financial year | Work test or Work Test Exemption to contribute? | Maximum concessional contribution without penalty | ||
| Less than 64 | No | $25,000 | ||
| 64 | Only required if age 65 when contributing | $25,000 | ||
| 65 and up to the person’s 75th birthday* | Yes | $25,000 |
So what is the WORK TEST EXEMPTION?
| Work test exemption (applies form 1/7/2019) | Allows an individual’s super fund to accept voluntary contributions made by individuals ages 65 to 74 for an additional 12-month period from the end of the financial year in which they last met the work test, subject to their total super balance being less than $300,000. |
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.*Once a person reaches 75 they can contribute up until 28 days after the month in which they turn 75.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
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Bruve
/ December 4, 2019Hi Liam, thanks for the response. I guess there will be a few Boomers who might need to adopt the strategies you mention. I thnk its a useful strategy to forgo the work test for those on lower balances, but as my super balance is above the $300k threshold, I will make the contribution in early March before I turn 65. Thanks again, Regards, Bruce
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SMSF Coach - Liam Shorte
/ December 4, 2019Hi Bruce
I have also updated the article to include all the changes to limits etc. and to include reference to the Work Test Exemption and Total Super Balance cap. Glad to help.
Liam
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SMSF Coach - Liam Shorte
/ December 4, 2019Reblogged this on The SMSF Coach and commented:
Updated limits for making contributions when turning 65. Includes the current concessional and non concessional caps, adds warning about Total Super Balance cap, the work test traps and explains the new “Work Test Exemption” which applies form 01 July 2019.
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Bruce
/ December 4, 2019Hi Liam
I turn 65 in March 2020. Can I make a concessional contribution of up to $25,000 and receive the tax deduction in this FY? Are there any restrictions eg do I need to make that contribution before the day that I turn 65?
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SMSF Coach - Liam Shorte
/ December 4, 2019Hi Bruce
Yes a person can make a contribution this year up until their 65th birthday and claim a deduction with no restrictions
If a person waits until after their 65th birthday to make the contribution then they must first meet the work test before making the contributions. So they will need to have worked 40 hours in any 30 day period from 01/07/2019 in order to make a contribution after their 65th birthday.
There is also one new option for people next year.
Work test exemption (which applies from 1 July 2019)
Allows an individual’s super fund to accept voluntary contributions made by individuals ages 65 to 74 for an additional 12-month period from the end of the financial year in which they last met the work test, subject to their total super balance being less than $300,000.
So if your balance in super is less than $300,000 and if you have met the work test in 2019-20 the you may be able to put further contributions in in 2020-2021 without meeting the work test in that year. Please get personal advice on this strategy as it is still new and it would be important to know your exact work history before providing personal advice,
Hope this helps.
Liam
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Wendy Swinburn
/ April 14, 2015I am 64 and turn 65 on 3rd June. I intend to contribute up to $540,000 before 3rd June. I am fully retired. I contributed $150,000 in the previous financial year. Do you agree this is OK? Thanks, Regards Wendy
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SMSF Coach - Liam Shorte
/ April 14, 2015Hi Wendy, I can only offer general advice on here but based on the data provided I would agree that if a person in general put $150,000 in last year and now puts $540,000 before turning 65 they will be fine. I caution that you should check superfund records (all of them that could possibly have received a contribution) and ensure you did not exceed the $150,000 concessional limit last year. Even $1 over can trigger the bring forward and defeat your current strategy. Remember also if you have exceed the $35,000 concessional limit that the excess may be added to form part of your Non-Concessional cap. Pease check and double check by seeking personal advice from your adviser/administrator.
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