Making extra super contributions will build your retirement nest-egg, as well as provide immediate and long-term tax benefits. So, what are extra super contributions and how much extra super contributions can you make?
What Are Extra Super Contributions?
Extra super contributions are generally considered to be additional contributions to super over and above standard employer super contributions.
All super contributions can be categorised into two types of contributions, as detailed below.
Types of Extra Super Contributions
The two types of extra super contributions are concessional contributions and non-concessional contributions.
Each type of contribution has its own rules and contribution limits.
Non-Concessional Contributions
Non-concessional contributions are after-tax contributions made into your super account where a tax deduction has not been claimed by anyone in respect of the contribution.
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Non-concessional contributions are generally made from your personal bank account, but some are made by your employer into your super account, as after-tax contributions. This is sometimes the case for government or semi-government employees, or those of you with defined benefit superannuation plans.
The general non-concessional cap is $110,000 per person, per financial year. This is the limit on the total amount of non-concessional contributions that you can put into super each year. However, you may be able to contribute more using the bring-forward rule, or none at all if your total super balance exceeds $1.9M or as a result of age restrictions.
Concessional Contributions
Concessional contributions are contributions made into your super account where the contributor has claimed a tax deduction in respect of the contribution.
The most common type of concessional contributions are mandated employer super guarantee (SG) contributions. These are the contributions that your employer must make into your super account at least every 3 months and is equal to 11% of your wage.
Other types of concessional contributions include extra super contributions such as salary sacrifice super contributions and personal concessional contributions.
Salary sacrifice contributions is the process of forfeiting part of your wage in exchange for equivalent increased pre-tax super contributions. Personal concessional contributions are additional contributions made to super from your bank account that you claim a personal tax deduction for in order to reduce your personal income tax liability. Learn more here.
All concessional contributions count towards the same annual concessional contribution cap of $27,500 per person, per financial year. However, you may be able to contribute more to super as a concessional contribution if your super balance is below $500,000 by utilising your unused carried-forward concessional contributions. Age restrictions also apply to certain concessional contributions.
Additional Employer Contributions
Additional employer contributions are contributions made by your employer to super in addition to the mandated amount. Specifically, it is compulsory for your employer to make SG contributions into your account equal to 11% of your balance up to the maximum super contribution base.
However, your employer might be making additional contributions into your super account above the standard SG rate and not limited by the maximum contribution base. They may do this in good nature, as part of an industry agreement, or to adhere to your employment agreement.
What Happens If I Make Extra Super Contributions?
If you make extra super contributions, your super balance will increase accordingly. If you make additional non-concessional contributions, the full contribution amount will be allocated to your member balance. If you make (or receive) extra concessional contributions, contributions tax of 15% (and possibly Division 293 tax) will be deducted from the contribution amount, with the remaining amount being allocated to your member balance.
How much extra super contributions can I make?
The amount of extra super contributions that you can make will depend on your age, account balance, the type of contribution, any carried-forward or bring-forward amounts available and the amount of employer contributions received.
It will also depend on whether the extra voluntary super contributions you are making are concessional or non-concessional contributions.
Let’s take a look at how much extra concessional contributions and how much extra non-concessional contributions you can make.
How Much Extra Concessional Super Contributions Can I Make?
The amount of extra concessional contributions you can make over and above any employer contributions, will be calculated as the general concessional contribution cap of $27,500, less employer contributions received.
For example, if you earn a wage of $100,000 per year, you would receive employer contributions of $11,000 (11% – this is the general SG rate, you may be receiving a higher amount). Therefore, you could make additional contributions of $16,500 ($27,500 – $11,000) for that financial year, as either personal concessional contributions or salary sacrifice contributions. However, you may be eligible to contribute more if you have unused concessional contributions from previous years.
How Much Extra Non-Concessional Super Contributions Can I Make?
The amount of extra non-concessional contributions you can make will depend on whether any of these after-tax contributions are automatically being paid from your employer to your super account. For most of you, your employer will not be making non-concessional contributions into your super account on your behalf. If you’re unsure, check your payslip.
Either way, the general non-concessional contribution cap is $110,000 per person, per financial year – assuming you are eligible to make this type of contribution). You may be eligible to contribute more using the bring-forward rule.
What happens if you pay more than $27,500 into super?
If you contribute more than $27,500 into super for a single financial year as concessional contributions, including employer contributions received, the excess amount above $27,500 will be assessed and taxed at your personal marginal tax rate for that financial year. However, you will also receive a tax credit equal to 15% of the excess amount to take into account the contributions tax paid.
You will have the ability to withdraw 85% of the excess contribution amount (which is the excess contribution minus the contribution tax paid), to assist with any additional personal income tax that would be payable.
For example, if you contributed $37,500 to super in a single year, $10,000 ($37,500 – $27,500) would be added to your assessable income when you complete your tax return. The ATO will send you an excess contribution letter stating your options and, if you wanted to, you could withdraw the excess (minus 15% contributions tax) of $8,500 into your personal bank account. You would also receive a 15% tax credit (i.e. $1,500) that would reduce tax on the $10,000 in your personal name, given you have already paid this amount in the form of superannuation contributions tax.
In saying this, if you had unused contribution caps available from previous years, you could pay more than $27,500 into super without exceeding the cap.
Learn more about unused concessional contributions in this video:
How much can you put in super each year tax free?
The amount that you can put into super each year tax free is $110,000, or $330,000 if you are eligible to use the bring-forward rule.
Tax-free super contributions are referred to as non-concessional contributions. Non-concessional contributions always enter and exit the superannuation environment tax free.
Read More: What is the Non-Concessional Contribution Cap?
Can I make a lump sum payment into super?
Yes, you can make a lump sum payment into super. All personal contributions to super can be made as lump sum payments or regular payments.
All employer SG and salary sacrifice contributions made into your super account will usually be made on a regular basis in line with your pay periods or, at the very least, on a quarterly basis. However, any personal super contributions that you make from your personal bank account can be made as one-off lump sum payments, regular consistent payments, or ad-hoc payments, at your discretion.
Should I put extra money into super now?
Whether you should put extra money into super now, or not, will depend on your specific circumstances and your objectives. You will also need to consider your age and eligibility to contribute.
By increasing super contributions, you will be placing more of your wealth into the tax-effective superannuation environment, where all super investment earnings are taxed at a maximum of 15%. However, you will be unable to access these contributions until certain conditions are met, such as retirement.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
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