Many retirees assume their super contribution days end the moment they stop drawing a wage, but that is not quite right. For some, retirement is actually the best time to put money into super, precisely because the rules work differently once the regular pay cheque disappears.
Take the case of one 60-year-old reader, recently retired, who wrote to the Financial Review’s Penny Wise column with a timely question. She has $800,000 already sitting in super and is about to receive a further $200,000 she wants to add to it. Her husband still works and has a larger super balance of his own.
While she was employed, she made concessional, or pre-tax, contributions as a matter of course, because they reduced her taxable income each year. Now that she has retired, that calculation changes. Without a salary to offset, the tax deduction that made pre-tax contributions so attractive largely disappears, which is why after-tax, or non-concessional, contributions can become the smarter move once work stops.
Her plan was to put as much as possible into super as a non-concessional contribution before 30 June next year, within the existing cap, then add the remainder once the new financial year begins on 1 July. Splitting a large sum this way lets a retiree use two years’ worth of contribution caps either side of the June 30 cut-off, rather than being squeezed into a single year’s limit.
Age limits and contribution caps still apply after retirement, so anyone in a similar position is wise to check their own circumstances before transferring a lump sum. But for those weighing up what to do with an inheritance, a redundancy payout or the proceeds of downsizing the family home, retirement might just be the one window where the old rule of thumb, always go concessional, no longer holds.
