SMSF Technical Education & Strategies

 

Maximising contributions - the timing of the 3 yr bring forward rule for non-concessional contributions

For those approaching age 65, a key element to your retirement planning may be to maximise the amount of money you contribute to your SMSF from money or capital you have sitting outside of super. Why ? Because once you turn on the SMSF income stream tap, the capital funding your income, plus the income stream itself, will be tax free - and that's as good as it gets.

One of the main strategies for achieving this is the the use of the bring forward provisions for non-concessional contributions (NCC). However, for those with substantial amounts to move into their SMSF, it is the timing of these contributions that will be most important in terms of maximising the NCC limits.

 

They key concept here is to work backwards from your 65th birthday. That is, create a timeline of contributions working back from just before your 65th birthday, and go from there. This is possible given the fact that a bring forward provision can be applied at age 64. Consider this example to illustrate:

 

Example:

Mary is 59 years old, is not working, and has $1.2 million that she would like to move into her SMSF by way of non-concessional contributions. She decides to plow on in and contribute her maximum bring forward amount right from the start, and then another amount in 3 yrs time. Here is how it would look:

 

Age	Contribution amount
59	$450,000
60
61
62	$450,000
63
64
Total	$900,000

 

As you can see, Mary has only been able to get $900,000 into her SMSF.

 

Now what if she took a different approach, and planned it out a bit better, by making a full $450k contribution at age 64, and working back from there.

 

Age	Contribution amount
59	$150,000
60	$150,000
61	$450,000
62
63
64	$450,000
Total	$1,200,000

 

By taking this approach, Mary has managed to optimise her NCC's and achieve her goal of getting all her required funds into her SMSF.

 

What about after age 65 ?

Once you turn age 65, things change a bit and there are some rules you need to be aware of.

 

Firstly, once your aged 65 or over (on 1st July) you cannot use the bring forward provisions, you can only contribute a maximum of $150,000 of non concessional contributions per year, and only if you satisfy the work test.

 

The exception to the $150,000 per annum cap is if the bring forward provisions have been triggered prior to your 65th birthday, or within the financial year of turning 65. For example, you are 64 on the 1st of July and turn 65 on the 5th of July, you can still trigger the bring forward any time that financial year.

 

Lets continue to use Mary as an example. Lets say that in the above example, that for some reason she was only able to come up with $200,000 as a contribution at age 64, with the rest of the funds becoming available after age 65 (lets say the other $250,000 was tied up in a term deposit which matures after she turns 65). She turns 65 on the 4th July, and the money becomes available on the 30th August the following financial year.

 

There are a two major issues to consider for Mary to get this remaining money into her SMSF:

 

1. Once over the age 65, Mary needs to satisfy the work test to be eligible to continue to contribute any money to her SMSF

 

2. Although Mary has triggered the bring forward rule and can still contribute another $250,000 over the entire 3yr period (subject to the above work test past age 65), once over age 65 (on 1st July each year) she can only contribute $150,000 at a time, as this is the 'fund capped' amount. So in this example, she will need to do two separate contributions of $150,000 and then $100,000.