If you are aged 55 or older and are considering selling your home to fund your retirement, one valuable strategy to explore is the downsizer superannuation contribution. This allows you to contribute up to $300,000 into your superannuation fund, offering a significant boost to your retirement savings. What sets the downsizer contribution apart from other types of super contributions is that there are no upper age limits, no requirement to meet a work test, and no restrictions based on your total superannuation balance, making it an attractive option for retirees.

Here are four critical factors to consider when evaluating the benefits of a downsizer super contribution.

1. Investment Properties and Downsizer Eligibility

It is important not to overlook investment properties when exploring the downsizer opportunity. Even if you do not reside in the property at the time of sale, you may still qualify for a downsizer contribution if the property was used as your primary residence for capital gains tax (CGT) purposes at some point during your ownership.

There is no requirement for you to have lived in the property for a specific minimum period, but you must have owned it for at least ten years to meet eligibility criteria. Therefore, investment properties that have served as your main residence at any time could offer a viable opportunity for this contribution.

2. Assessing Whether a Downsizer Contribution is the Right Option

While the downsizer scheme provides an appealing option, it is essential to evaluate other contribution types that may better align with your financial and tax planning objectives.

For example, if you expect to incur capital gains tax on the sale of your property or need to manage other income tax liabilities, you might benefit from making a personal contribution to your super and claiming a tax deduction. Such personal contributions are classified as “concessional contributions” and count toward your annual concessional cap, currently set at $30,000. However, if your total super balance on June 30 is below $500,000, you may be able to leverage unused concessional contribution caps from the last five financial years, enabling a potential contribution of up to $162,500 in the current financial year.

This strategy not only helps optimize your tax position but also allows for significant retirement savings growth. It is important to note, however, that you cannot claim a tax deduction for downsizer contributions. Additionally, to make a personal deductible contribution, you must be under the age of 67, or between 67 and 74 and meet the work test or qualify for the work-test exemption. Contributions after age 75 are limited to 28 days post-birthday.

3. Timing Your Downsizer Contribution

If you own multiple properties that might qualify for the downsizer scheme, it may be beneficial to delay utilizing this option and instead use your concessional or non-concessional caps if eligible.

The downsizer contribution is a one-time opportunity and not subject to annual or lifetime contribution limits. Therefore, holding off on making a downsizer contribution could prove advantageous, especially if your super balance is projected to grow substantially, or if you will be over 75 when selling a property in the future and are no longer eligible to make other types of contributions. By doing so, you could maximize your superannuation contributions today while reserving the downsizer opportunity for a time when other contribution avenues may no longer be available.

4. Opportunities for Couples

For couples, the downsizer contribution provides significant potential to increase retirement savings, as the $300,000 cap applies per person. This allows couples to collectively contribute up to $600,000 into their superannuation, assuming both partners meet the eligibility criteria. Even if only one spouse owns the property, both partners may be eligible to make a downsizer contribution.

Moreover, there may be opportunities to optimize social security benefits, such as the Age Pension, by strategically timing the contribution. If one partner is eligible for the Age Pension and the other is not, contributions to a super accumulation account are exempt from the means test until the account holder reaches Age Pension age or starts drawing an income stream.

It is important to note that once a contribution is made, the funds belong solely to the contributor. Therefore, while strategies may exist to optimize contributions and benefits as a couple, it is essential to align your contributions with your long-term goals and financial planning objectives.

Consider Estate Planning in Your Strategy

When making large superannuation contributions, especially following the sale of a significant asset such as your home, it is crucial to integrate these decisions with your broader estate planning strategy.

This includes reviewing your will, updating super death benefit nominations, and ensuring that your super contributions are distributed according to your wishes in the event of death. Unlike relationship breakdowns, where super can be divided, death benefits are subject to specific regulations that may affect your ability to distribute superannuation to your intended beneficiaries.

Conclusion

Downsizer contributions offer a unique and valuable opportunity for those over 55 to enhance their retirement savings. However, given the various rules and tax implications of different super contributions, it is essential to carefully consider whether the downsizer scheme is the optimal choice based on your individual financial situation and long-term goals. By weighing other options and considering the benefits for couples, tax advantages, and estate planning needs, you can make a more informed decision on how best to allocate the proceeds from your property sale.