Last week we were discussing the Downsizer Contribution, what type of contribution that is, how it works,
and what are the rules you have to meet to be eligible to make this type of contribution.
If you missed that video, please watch it here: Downsizer Contribution to super – Part 1.
I will attach the link below this video, as well as you have the link listed just about now and I will also include it at the end of this video.
And today we will continue our discussion about that very valuable type of superannuation contribution.
Today I will explain who will benefit from this strategy, essential factors that you need to be aware of and you need to take into consideration
and I will give you some solid examples of how it works in real life situations.
My name is Katherine Isbrandt from About Retirement, I am Certified Financial Planner
and you are watching About Retirement TV, the place that is fully dedicated to the issue of retirement ,
how to be financially prepared or how to improve your retirement if you are already there.
The author of “The Little Prince” – which was one of my favourite book from my childhood.
He was French, I cannot speak French, so I will not even try to pronounce his name. But he said: “A goal without a plan is just a wish”
So if you want to have safe, secure but also enjoyable and financially successful and rewarding retirement,
you need to do some solid planning and not just wishful thinking.
So let's start! Who can benefit from downsizer contributions?
1. This strategy can be very beneficial if you are between ages of 65 and 74
as you are not required to meet any work test in order to contribute.
2. It can be particularly appealing if you are over the age of 74,
as this is just about the only way how you can add any money to your super fund.
3. If you are a self-funded retiree
who would like to put more money to super to improve your income level,
especially if you know that you are never going to be eligible for Age Pension or any other government benefit.
4. Your super is already over $1.7mil in value
and you want to take advantage of a lower superannuation tax rate of 15%,
rather than paying tax outside of superannuation.
But you should also understand the transfer balance cap rules, that will still apply, regardless of the value of your superannuation.
My recommendation is please get good retirement advice.
There are other important issues you really need to remember and consider.
1. The Downsizer Contribution can affect your Age Pension entitlement
- when money is part of value of your home, it is exempt from Income and Assets Test.
However now, that you have decided to extract those funds from your home equity,
that added contribution will impact the level of Age Pension you might be eligible for
or you might lose that benefit altogether, which obviously will impact your overall financial situation.
So please contact me to find out what strategies you can use, to have both, income from your super and some Age Pension as well.
2. Please also be aware that the increased super balance will also impact
your eligibility for residential Aged Care as well as Home Care Services.
If this is you or maybe the case for your parents, again, please contact me for personal advise.
3. As mentioned before, you are required to make the downsizer contributions within 90 days of receiving the proceeds,
which is usually the settlement date,
however if due to factors outside of your control
there is a delay in receiving those funds,
you can apply to the tax office for the extension of your contribution period.
4. The downsizer contribution doesn't have to be paid in one lot,
as a matter of fact, you can do multiple contributions,
as long as the total does not exceed the allowable limit of $300,000 per eligible person
and all contributions need to be completed within the prescribed 90 day period.
5. If for some reason tax office decides that you have not met all the rules of the downsizer contributions,
your super fund will assess if they can keep funds under the regular non-concessional contributions.
If not, then balance will be refunded back to you.
6. There is no requirement for you to purchase a new home.
Sometimes it might be actually beneficial due to many reasons not to buy a new family home.
It could be a lifestyle choice, you might be advised that becoming a non-homeowner is a better financial and income decision,
especially for Age Pension payments.
Or maybe your retirement plan is to live overseas after selling family home in Australia
and after applying for Age Pension and timing here is crucial.
So let's now check some examples:
Steve is 76 and Margaret is 72. They are married and decided to sell their family home of 25 years for the amount of $900,000.
After the sale of their home, each partner can contribute up to $300,000 to their respective superannuation funds.
Tom is 67 and his wife Ella is 64 they sold their family home for $850,000.
Tom can contribute to superannuation up to $300,000, but Ella is cannot contribute to anything. Why?
Well, she's not eligible for Downsizer Contribution being below the age of 65.
Martin who is 71 and his wife Cate is 70 they've just sold their home for $450,000.
As the total sale price is $450,000 and the total contribution cannot exceed the sale proceeds,
therefore they can only contribute up to $450,000 and they can split the contribution in any way they wish up to $300,000 per person.
Therefore they can contribute for example $200,000 for one partner and $250,00 for the other,
or $300,000 for one and $150,000 for the other.
It is a good idea to make a good plan how to split those funds for the best income planning for the rest of your retirement.
Bob 68 and Paula 67 they sold their family home for $600,000, but only Bob was on the title.
So what is going to happen in this situation? Is Paula eligible, since legally she is not the owner of family home.
Actually they both are still eligible to contribute $300,000 each to their respective super funds.
And right now let's see Mary who is 69, her husband Ryan died a year ago.
He was the original owner of the house for over 20 years, but they were only married for 5 last years of Ryan's life.
Mary wants to move on with her life and sold the house for $640,000.
She lived in the house for 5 years while Ryan was alive and 1 year after his death.
So altogether she lived in that house only for 6 years, and not the 10 year period required.
So would she be eligible to contribute to super? What do you think?
Well.....yes she is eligible as her life partner lived in the house for over 10 years,
this is sufficient evidence for tax office to accept Mary’s Downsizer contribution eligibility.
As you can see, each situation might be different, and each requires its own specific planning.
Not only it is sometimes very difficult to figure out if you are eligible for the Downsizer contribution
or any superannuation contribution for that matter.
But what is even more important, you should know precisely the outcome, long before you start selling your home.
Otherwise you might have a nasty surprise like losing your Age Pension entitlement when you are completely unprepared.
One good news that I want to mention here is that in the 2021-22 Federal Budget, the government proposed to reduce the age of eligibility
for a downsizer contribution from 65 to 60, but it still needs to pass as a legislation. The plan is to commence this change from 1st July 2022.
For more details watch my video: "Federal Budget 2021 - 22 for Pre and Post Retirement"
Before you make your decision if the Downsizer Contribution is for you, please check this with an experienced Retirement Planner,
so you can implement the most beneficial strategies for your future retirement.
There are so many things that require your attention and your consideration,
that this professional advice can actually go a very long way for you.
For more information about efficient and proficient retirement planning, check out all my other videos right here on this channel.
If you haven’t noticed, at the top banner of my channel, in the right corner you should find my eBook: "12 Principles of Investing".
Feel free to download the ebook after you finish to listen to this video
and then return to listen to some more of my videos that explain all other issues of retirement planning.
I also invite you to visit my website AboutRetirement.com.au, where you will find lots of additional information, all dedicated to the topic of retirement.
And while you are there, sign up to my newsletter to keep up with all changes that might effect your retirement plans.
And now I invite you to watch this mentioned video – Part 1 of the Downsizer Contribution,
great start to fully understanding rules of this type of contributions to super.
The second lot of videos is all about other forms of investing into super
and benefits of each one of them either immediately
or during your retirement or both
I will see you in my next video, bye.