Boosting Your Superannuation with Downsizer Contributions
As you approach retirement, it’s essential to consider ways to enhance your superannuation savings. One effective strategy is making downsizer contributions. This option is particularly beneficial for those aged 55 or older who are selling their homes. Let’s explore what downsizer contributions are, their benefits, and how they can fit into your retirement planning.
What is a Downsizer Contribution?
A downsizer contribution allows individuals aged 55 or older to contribute up to $300,000 from the proceeds of selling their home into their superannuation fund. This strategy is a fantastic way for retirees to boost their retirement savings without affecting other contribution limits.
Key Benefits of Downsizer Contributions:
- No Upper Age Limit: You can make contributions at any age once you’ve turned 55.
- No Total Super Balance Restrictions: Contributions can be made regardless of how much you already have in your superannuation.
- No Work Test Required: Even if you are fully retired, you can still make contributions.
- Tax-Free Withdrawals: The funds remain tax-free while in your superannuation.
- Spouse Contributions: Both spouses can contribute up to $300,000 each, even if only one spouse owned the home.
Who is Eligible for Downsizer Contributions?
To qualify for a downsizer contribution, you must meet the following criteria:
- Be aged 55 or older at the time of contribution.
- Have owned the home for at least 10 years before selling.
- Have used the property as your main residence at some point.
- Make the contribution within 90 days of the settlement date.
- Not have made a downsizer contribution from another home previously.
- Provide your super fund with the necessary downsizer contribution form at the time of contribution.
Do You Need to Buy a Smaller Home?
No, you are not required to purchase a new home to make a downsizer contribution. As long as you meet the eligibility criteria, you can contribute the proceeds from the sale of your home into your superannuation, regardless of whether you buy another property.
Other Considerations
- Centrelink Impact: Downsizer contributions count towards your superannuation assets, which may affect your age pension entitlements.
- Capital Gains Tax (CGT) Implications: You must be eligible for a full or partial CGT exemption under the main residence rules.
- Access to Funds: If you are aged 55, you won’t be able to access the contribution until you meet a superannuation condition of release.
Case Study: Gavin and Pia
Let’s consider a practical example. Gavin and Pia decide to sell an investment property that was once their main residence. Gavin purchased the apartment in 1998 and lived there before renting it out. Since he meets all eligibility criteria, he contributes $300,000 to his super. Pia also makes a contribution of $300,000, even though she wasn’t on the property title, because she lived in the home while they were together. This approach not only boosts their super savings but also sets them up for a more comfortable retirement.
How a Financial Adviser Can Help
Navigating the world of superannuation can be complex, but a financial adviser can provide invaluable assistance. They can help you assess your eligibility for downsizer contributions, determine the best time to contribute, ensure compliance with superannuation rules, and plan for any tax and Centrelink implications.
Contact Acton Wealth today to see how a downsizer contribution can enhance your retirement strategy.
