SMSF Technical Education & Strategies

 

Maximising non concessional contributions - age 64 any time that year

A twist on the bring forward provisions for non concessional contributions is the ability to still utilise this strategy in your SMSF, even though you may be over age 65.

This is due to the fact that the bring forward provisions can be used, as long as you were aged 64 on 1st of July that financial year, even if by the time you want to make the contribution you are already aged 65. However, there are a few other interactions with the Super laws that come into play once your over 65 that you need to be aware of, with the most notable that after age 65, you need to meet a work test to continue to contribute to super. This is best illustrated via an example:

 

Example:

Jim turns 65 on the 30th July 2010, and has not triggered any previous bring forward provisions on his non concessional contributions. He comes into an inheritance of $250,000 on the 1st of November that year.

 

Jim is able to trigger a bring forward due to the fact that he was only aged 64 on the 1st of July that year, and hence can contribute his entire $250,000 (i.e. up to $450,000) that year, or spaced out over the 3yr period up to 2012/13. He does however need to satisfy the work test to contribute the amount post his 65th birthday.

 

Now, say Jim comes into another lump sum of money (say $200,000) that he wants to contribute in the following year of 2011/12. He still has $250,00 up his sleeve that he can contribute over the 3yr period ending 2012/13 so he is fine in terms of the cap. However note the following:

 

- In 2011/12, Jim is aged 65 on the 1st of July that year, and hence the 'fund capped' amount is limited to $150,000. This just means Jim will need to make two separate contributions of $150,000 and $50,000.

 

- Again, as Jim is aged over 65, he will need to make sure he meets the work test.

 

This strategy can be useful for members in the following circumstance:

 

1. The re-contribution strategy:

If you are wanting to do the re-contribution strategy (see our article on this strategy for more info) for estate planning purposes however you have not been able to do a withdrawal due to you still working prior to age 65, then this strategy becomes viable in the year you turn 65. You are then free to make the withdrawal, and you can access the bring forward provision of $450,000 to make the re contribution that financial year.

 

2. Inheritance or asset sale after you turn 65

If the timing of either an inheritance or the proceeds from a significant asset sale (such as a property etc) happen to occur when you are 65, then provided you were 64 on the 1st of July that financial year and you meet the work test, you can access the bring forward provisions and contribute up to $450,000 of those proceeds that financial year. This is subject of course to any tripping of the bring forward provision you may have had in the past 3 years.