In 2020, a husband and wife approached us with the intention of maximizing their superannuation contributions after selling their family home for just under $2 million, where they had lived for nearly 20 years. To achieve this, we devised a strategy that combined Downsizer, non-concessional, and concessional contributions.
At the time, individuals over the age of 65 could make a Downsizer contribution of up to $300,000 into their superannuation from the sale of their home, provided they had owned the home for over 10 years and the contribution was made within 90 days of settlement. The husband was 65 years old 40 days after settlement, giving us a 50-day window post-birthday to contribute $300,000 into his superannuation. The wife, being 61 at the time, was ineligible for the Downsizer contribution.
We also recommended a series of Non-concessional contributions. Using the three-year bring-forward rule, available to individuals under 65, the husband could contribute three times the annual limit of $100,000 before he turned 65. This meant we had 39 days after settlement to contribute an additional $300,000 into his superannuation. For the wife, we advised contributing the annual limit of $100,000 for the next four years. In the fifth year, just before she turned 65, we utilized the three-year bring-forward rule again, allowing her to contribute another $300,000 tax-free into her superannuation.
Finally, we suggested that both the husband and wife make $25,000 in Concessional contributions each year. These contributions not only increased their superannuation but also provided personal tax deductions, which helped offset the investment income they generated outside of superannuation.
This strategy allowed them to contribute close to $1.5 million from the sale of their home into their superannuation funds, with most of this amount being untaxed.
Since we initially provided this advice, several of the relevant thresholds and age limits have changed. The eligibility age for Downsizer contributions decreased from 65 to 55, and the three-year bring-forward rule for Non-concessional contributions is now available to individuals up to 75 years of age. The non-concessional contribution limit has also increased from $100,000 to $120,000, and the concessional contribution limit has risen from $25,000 to $30,000, with the age limit for making personal contributions extended to 75.
As these thresholds and age limits were updated by the ATO, we revised our advice annually to ensure our clients could take full advantage of the new rules. This allowed even more of the sale proceeds to be contributed to their superannuation funds, further strengthening their retirement savings.