Last-minute super contribution risks
TODAY is the last day of the financial year, and any astute member of a super fund who is thinking about making a large last-minute contribution will no doubt be doing the sums with extreme care.
As Smart Investing has discussed several times over the past 12 months, the risks of making excess contributions are particularly high with the halving of the concessional contribution caps from 2009-10.
We last talked about this issue on May 20.
The latest newsletter from specialist SMSF administrator Heffron provides an excellent rundown of amounts that are treated as contributions and count towards the appropriate cap yet understandably are “often overlooked” by members. These amounts include:
• The payment of SMSF expenses by a member where no invoice was issued to the fund or repayment to the member sought.
• The payment by a member or a member’s employer of insurance premiums for a fund-held insurance policy.
Age can be a tricky factor when thinking about making last-minute contributions. This because the concessional contributions cap for those over 50 is twice as much as for younger members.
As Heffron’s newsletter emphasises, a member who turns 50 by the end of the financial year is eligible for the higher concessional cap. “This applies even if all the contributions were made before he turned 50.”
Finally, a provision that can catch fund members: Excess concessional contributions count towards the non-concessional contributions cap.
A large contribution may seem to make sense given a member’s personal circumstances but it can be highly worthwhile to double check, or triple check, exactly how much has been contributed so far. And seriously consider whether to gain professional advice on this issue if appropriate.
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Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.