How downsizing can revitalise your retirement

March 31st 2023 | Categories: Retirement |

Downsizer contributions age lowered to 55

From Jan 2023, you can make a downsizer contribution into super from age 55, down from 60 previously. The downsizer rules allow eligible individuals to contribute up to $300,000 from the sale of their home into super. Couples can contribute up to this amount each, up to a combined $600,000. You must have owned the home for at least 10 years. Downsizer contributions don’t count towards your concessional or non-concessional caps. And as there is no work test or age limit, downsizer contributions provide a lot of flexibility for older Australians to manage their financial resources in retirement. For instance, you could sell your home and make a downsizer contribution of up to $300,000 combined with bringing forward non-concessional contributions of up to $330,000. This would allow an individual to potentially boost their super by up to $630,000, while couples could contribute up to a combined $1,260,000.  

What is the downsizer contributions rule?

Under the new legislation, Australians aged 60 or older will be allowed to contribute up to $300,000 worth of the proceeds of selling their home to their super fund, provided certain conditions are met. These include:

• it must have been owned by you or your spouse for at least 10 years, during at least some of which it was your main residence,
• it cannot be a mobile home such as a caravan or houseboat, and needs to be in Australia,
• the contribution must be made within 90 days of the sale and the super fund must be correctly notified,
• you cannot have previously made a downsizer contribution from the sale of another home.

It’s important to note that you do not have to buy a new home for the sale to be considered downsizing – so moving in with loved ones, to a retirement village or into an investment property are all viable options. These contributions are made post-tax and are not tax-deductible, however, they do not count towards your concessional or non-concessional contributions limit. They will also impact your total super balance – particularly for the purposes of the $1.6 million transfer balance cap and determine eligibility for the age pension.  

What prompted the changes?

The new legislation is intended to benefit Australians in two ways. The ability to invest downsizing proceeds can help Australians support their own retirement – with $300,000 constituting a large portion of ASFA’s retirement standard. This helps to ease pressure on the public pension fund and means more Australians can live out their golden years in style. Currently, many larger homes are occupied by older people and are surplus to their needs. However, being unable to invest the proceeds into their retirement fund presents a barrier to many soon-to-be retirees. With more older people encouraged to downsize,  this should free up housing stock for younger, growing families.

Where to from here?

Those nearing or enjoying retirement should take the opportunity to reconsider their strategies. Your downsizer contribution can make a massive change to your total balance and doesn’t impact your non-concessional contributions cap. If you’re over 55 and still working, it pays to know that you can still utilise your non-concessional limit to contribute more than the $300,000 downsizer limit. Your contribution allowance will be determined by your total super balance, which is not calculated until June 30 each financial year. This means that your eligibility for various schemes such as spouse contributions and concessional carry-forward will only change at the end of the financial year. So if your downsizer contribution drives your total super balance above the general transfer balance cap of $1.6 million, you’ll have the remaining time in that financial year to maximise your super.

A downsizer contribution can make a huge difference to you and your spouse’s super balances.

For example, Jessica and Steve are both over 55 and are working part-time. Should they sell their family home, both will be eligible to contribute up to $300,000 to their personal super accounts. Steve already has a total super balance of $1.4 million, so this contribution will put him above the general transfer balance cap. This would make him ineligible to make non-concessional contributions in the next financial year. Until then, Steve is able to put in up to a total of $100,000 more as non-concessional contributions because he meets the work requirements for those over-55. Jessica, however, already acquired a total super balance of $1.6 million before the end of the last financial year. Therefore, even though she’s working, she is only eligible to make the downsizer contribution and also cannot receive spouse contributions from Steve. Regardless, a downsizer contribution will make a huge difference to both Jessica’s and Steve’s super balances and see them enjoying an especially comfortable retirement.

You may also be interested in our articles:

• Transitioning to retirement – what you need to know
• 8 retirement mistakes and how to avoid them
• Living off investment properties in retirement

Super strategy, particularly with self-managed funds, is extremely nuanced. Working with a financial adviser who understands not only the direction you want to go but where you’ve already been will help you build a retirement plan perfectly suited to the needs of you and your loved ones. Contact us at Invest Blue today.

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