By Luke Kelly, Luke KellyFinancial Adviser
1 March 2022
The recent growth in residential property has provided an opportunity for those who have turned 60 years of age and are thinking about retirement.
An optimal strategy when planning for retirement is to eliminate all remaining personal debt, contribute as much money into super as possible and commence an allocated pension, drawing down a tax-free income to fund your retirement living costs.
But what are your options if the majority of your wealth is tied up in your now empty nest family home and your super is well short of an amount required to fund the next 30 years of retirement?
The recent changes to the downsizer contribution eligibility age may provide you with the answer.
Currently, only those aged 65 and older can take advantage of the $300,000 downsizer contribution but recent legislation just passed to lower the eligibility age to 60 years of age, effective 1 July 2022.
There are some retirement strategies now available for a couple in their early 60’s, combining available contribution limits to maximise their retirement savings. Let me explain using the below example.
How to contribute $1,260,000 into super:
A couple in their 60’s may wish to sell their unencumbered home for $3,000,000 and purchase a new home for $1,500,000. If sold in July 2022, the couple can take advantage of the downsizer contribution and each contribute $300,000 into their complying super funds within 90 days of settlement.
Additionally, if they are under the current transfer balance cap (individual super balance under $1,370,000 is required, including the downsizer contribution), they also are able to make a non-concessional contribution of up to $330,000 each in their super fund. A $330,000 non-concessional contribution utilises the “bring it forward” rule.
They have each contributed $630,000 into their super fund, or a combined $1,260,000 of their available surplus proceeds from the sale of their family home. They now may wish to retire, commencing a tax-free allocated pension to fund their retirement needs.
It is also worth noting that a downsizer contribution also provides an opportunity to those who have large superannuation balances, given you are able to make the $300,000 contribution into super even if you have reached your transfer balance cap of $1,700,000.
So how do I know if I am eligible?
There are some strict rules to be eligible for the downsizer contribution:
- You must be 65 years old (or 60 from 1st July 2022) or older at the time you make a downsizer contribution.
- Your home must be owned by you or your spouse for 10 years or more prior to the sale and is CGT exempt under the main residence exemption.
- Your home is in Australia and is not a caravan, houseboat, or other mobile home.
- You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement and the ATO downsizer contribution form is provided to your super fund prior to the contribution being made into your super fund.
It is important that you speak with a qualified financial adviser before deciding to make any contribution into your super fund, given there are additional rules and thresholds that need to be considered. Contact the PKF Wealth team today.