How Much Can You Put Tax-Free in Your Pension

To know how much you can put into your retirement fund free of taxes, you must understand that your contributions go through two phases: the accumulation and the retirement phases.


The accumulation phase is simply defined as the period when you’re putting money into your super for retirement. During this phase, you cannot prematurely withdraw money without facing huge fees and taxes.


On the other hand, the retirement phase is when you can reap the fruits of your labor and enjoy the money you’ve stockpiled during the accumulation phase. Money transferred into this phase enjoy tax benefits for maximizing your retirement account.


However, there’s a limit on how much you can put into your retirement fund. Regulations have been placed to eliminate the opportunity for high-salary individuals to abuse the system.


Pension Contribution Limits

There are two types of contributions, namely concessional and non-concessional, that can help you accumulate more money that can be possibly transferred into the retirement phase.


Concessional contributions refer to salary sacrifice and personal, tax-deductible contributions into your super account. Non-concessional contributions are funds that you voluntarily put into your super.


Concessional contributions per annum are limited to $25,000. On the other hand, the non-concessional contribution cap is $100,000 per year.

Super funds are moved from the accumulation phase to the retirement phase the moment the member becomes eligible for a pension. Currently, the allowable amount that can be transferred into the pension phase is $1.6 million. Any amount transferred within this transfer balance cap is tax-free.


Transferring Funds Into the Retirement Phase

When a super is started, a transfer balance account is created. This theoretical account is where all transactions related to your super are recorded. It uses the credit-debit system to record contributions, taxes, and capital gains during the accumulation phase.


When you enter the retirement phase, the exit value of the transfer balance account will be computed. The total amount that will be transferred may be more than the expected value because of the capital gains and taxes that have been debited and credited to your account.


If you’re already in the retirement phase and your super balance exceeded the transfer cap due to investment returns, you don’t have to worry about penalties. Penalties are applied only when the cap on the transfer balance account made through contributions is exceeded.


In any other case that you exceed the cap, you must reduce the amount held in the pension phase and pay the excess transfer balance charges. The excess amount can be put back into the accumulation phase or withdrawn as a lump sum.


Usually, people prefer to roll back the excess amount into the accumulation phase to enjoy the associated tax benefits. Concessional contributions and gains left on the accumulation phase are taxed at 15%.


Those who have accounts that exceed the $1.6 million cap prior to the implementation of the transfer balance cap must deal with complex taxation and transfer processes.



The transfer balance cap provides a fairer setup for everyone gearing for their retirement. Without this limit, high-salary individuals can exploit the tax-free benefits of putting as much money as they can in the retirement phase.


To maximize your retirement benefits, you should put as much as you can on both concessional and non-concessional contributions per year. This will let you fully utilize the $1.6 million cap that’s eligible for tax-free benefits.


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