Non-Concessional Contributions: A Simple Way to Boost Your Super

When you are approaching retirement, there is often a point when the focus shifts from simply earning

and saving money to asking a different question: where should my money be held for the years ahead?

That is where non-concessional contributions can become useful.

The name may sound unnecessarily complicated. Superannuation does have a talent for turning simple ideas into long phrases. But the basic concept is straightforward. A non-concessional contribution involves voluntarily moving your own money into super.

Unlike some other super contributions, you generally do not receive an immediate tax deduction for making a non-concessional contribution. The contribution itself is also not taxed when it enters your super fund.

So, if there is no immediate tax saving, why would you consider making one? The potential benefit is what

happens to your money after it enters the superannuation environment.

Think Beyond the Tax Saving Today

It can be tempting to judge a financial strategy by what it saves you in tax immediately. With non-concessional contributions, however, the bigger consideration may be the longer-term tax treatment of your investments.

Suppose you have savings or investments held in your personal name. Any interest, dividends or other investment income they produce may be included in your personal taxable income. Depending on your circumstances, that could mean paying tax at your personal marginal tax rate year after year.

Moving some of that money into super may change the tax environment in which future earnings are generated.

While you are still working and your super remains in accumulation phase, investment earnings within the fund may be taxed at up to 15%. If your personal tax rate is higher, that difference can potentially become valuable over time.

When you retire and move eligible super savings into pension phase, the tax treatment may become more favourable again, with investment earnings potentially taxed at zero.

The important point is that a non-concessional contribution is not necessarily about receiving a tax

benefit today. It can be about positioning your savings more effectively for the years ahead.

Large Amounts Can Potentially Be Contributed

Non-concessional contributions can be particularly relevant later in life because this is often when people suddenly have larger amounts of money available.

You might have accumulated substantial cash savings. Perhaps you have sold an investment property and have money left after repaying debt. You may receive an inheritance, or you might decide to downsize your home.

In situations like these, the question becomes: what should you do with the money?

One possibility is putting some of it into super. The annual non-concessional contribution limit discussed

here is $130,000 per person per financial year.

There is also a provision known as the bring-forward rule. Rather than contributing only the annual amount, eligible people may be able to bring forward future contribution limits and contribute up to three years’ worth in a shorter period. Based on a $130,000 annual limit, that could allow contributions of up to

$390,000.

For a couple who are both eligible, that could potentially mean as much as $780,000 combined.

This can make the strategy particularly useful when a significant amount of money becomes available at once. However, using future limits now means those limits will not be available again during the relevant bring-forward period, so planning matters.

Consider the Long-Term Tax Environment

A simple example helps illustrate why someone might consider moving money into super.

Imagine you have $100,000 invested outside super and it generates a return of around 5% a year, or

$5,000. That return might come from interest, dividends or another source of investment income.

If the money is held personally and you are paying tax at a rate of 30% or more, some of that $5,000 return will be lost to personal income tax.

If the money can instead be contributed to super, future investment earnings may be taxed differently. During accumulation phase, that could mean a tax rate of up to 15%. Once retirement arrives and eligible savings move into pension phase, the tax on investment earnings may potentially fall to zero.

That difference can become meaningful when it continues for many years.

Of course, tax should never be the only consideration. Your investment choices, retirement income requirements and need to access your money are equally important. The objective is not simply to chase the lowest tax rate, but to make sure your money is structured appropriately for your retirement.

Don’t Put Money Into Super Without a Plan

There is an important catch with contributing extra money to super: once it goes in, it may be difficult to

get it back out until you satisfy the relevant rules for accessing super. That makes timing important.

Before making a large non-concessional contribution, consider how much money you may need outside super. Think about upcoming expenses, emergency savings and your everyday living costs. Having a large super balance is not particularly comforting if you have left yourself short of accessible cash.

Contribution limits also need careful attention. Annual non-concessional contribution limits generally cannot simply be saved up and used in later years if you do nothing. The bring-forward provisions provide additional flexibility, but they work differently and using them can affect your ability to make further contributions in subsequent years.

For people approaching retirement, non-concessional contributions can therefore be a valuable part of the conversation rather than an automatic decision. The right amount and the right timing will depend on your individual circumstances.

Important note on currency of information: Superannuation contribution limits, eligibility requirements, tax rates and bring-forward rules can change. The figures and rules described above may therefore become outdated or may not apply to every individual. Current rules and your eligibility should be confirmed before making a contribution.

The information provided in this article is general in nature and has been prepared without considering your personal objectives, financial situation, or needs. It does not constitute financial advice. Before making any decisions, you should assess its appropriateness and seek professional financial advice tailored to your circumstances. Additionally, ensure you review the relevant Product Disclosure Statement (PDS) before deciding on any financial product.