As you get closer to retirement, boosting your super balance is always at the top of the financial to-do list.
Making additional contributions can be extremely beneficial and help you achieve your financial goals.
If you happen to receive a financial windfall or sell a significant asset, superannuation is the perfect place to make a deposit… but sometimes the contribution caps can make it difficult to put a large sum into your super account in one year.
This is where applying the super contributions bring-forward rule could be a useful strategy.
What is the bring-forward rule?
The bring-forward rule applies to non-concessional contributions – these are contributions that are made from your after-tax income and are not taxed in your super fund. From 1 July 2021, the annual non-concessional contribution cap increased from $100,000 to $110,000.
Bring-forward arrangements enable you to make up to three years’ worth of these contributions into your super in a single financial year, as long as you meet certain eligibility criteria.
Essentially, this means you can put up to $330,000 into your superannuation without incurring any additional tax liabilities. Of course, there are some guidelines to follow, but this can be extremely useful if you have a lump sum you want to put away.
How does it work?
Firstly, applying the bring-forward rule depends on the total amount you have in your super at the end of the previous financial year. If your super is already close to the general transfer balance cap of $1.7 million, there are limitations on how much you can contribute under this arrangement.
The ATO states:
“From 1 July 2021
The amount of the non-concessional contributions cap you can bring forward is either:
- three times the annual non-concessional contributions cap over three years (that is, $330,000) if your total super balance on 30 June of the previous financial year is less than $1.48 million
- two times the annual cap over two years (that is, $220,000) if your total super balance on 30 June of the previous financial year is above $1.48 million and less than $1.59 million
- nil ($0) if your total super balance is $1.59 million or above.
These limits are based on the:
- non-concessional contribution cap of $110,000
- total super balance in relation to the general transfer balance cap of $1.7 million.”
You automatically trigger the bring-forward rule as soon as you make a non-concessional contribution that exceeds the $110,000 annual cap. For example, if you make a $200,000 non-concessional contribution in the current financial year (2021-22), this would be $90,000 over the standard annual cap.
As long as you meet the eligibility criteria, the bring-forward rule would apply to this contribution, and it means you could make additional contributions up to $130,000 over the subsequent 2022-23 and 2023-24 financial years. However, as outlined above, the total allowable contribution will depend on your super balance at the end of the previous financial year.
Eligibility is based on two separate factors. The balance of your super impacts the amount you can contribute under these arrangements, but your age also dictates what you are allowed to do. With regards to eligibility, again the ATO states:
“If you are under 67 years of age at any time in a financial year, you may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.
If you are 67 years old or older on 1 July, you cannot access the bring-forward arrangement in that financial year. You need to meet conditions for certain types of contributions to be accepted by your super fund, including satisfying the work test or work test exemption.”
We discussed the superannuation work test in a previous article, but if you want to find out more about your eligibility, we recommend talking to a professional adviser.