How does a lump sum superannuation payment contribute to building a larger balance?

There are two types of super contributions:

• Concessional contributions, which include mandatory employer contributions, personal concessional contributions, and salary sacrifice contributions. The contributor receives tax deductions on these contributions.
• Non-concessional contributions (including the lump sum contributions made by you) are made from post-tax savings, and the contributor doesn’t receive any tax deductions for these. 

Both concessional and non-concessional contributions have annual limits for every financial year. If you have more than one super account, the maximum annual cap considers contributions made to all these accounts.

Your concessional contributions must not exceed $27,500 in total per financial year, regardless of your age and super fund balance.

The maximum non-concessional superannuation contribution limit (including lump sum payments) for all individuals is capped at $110,000 if the total balance is less than $1.7 million. However, you may be able to contribute more in a financial year using the ‘bring forward’ rule.
While under age 65, the non-concessional ‘bring forward’ rule allows you to bring forward up to two years’ maximum cap, which means you can contribute up to $330,000 over three financial years without the annual limit being applicable. This bring forward rule is effective in the financial year where your non-concessional contribution exceeds $110,000.
However, if the balance in your super account is more than $1.7 million, you can’t make any additional non-concessional contributions. If you make a contribution, you may receive a letter from the Australian Tax Office (ATO), and you may need to pay the applicable tax.

The maximum limit on superannuation lump sum contributions is not applicable in the following two situations:

Business sale

If you’re a businessperson and sell your business, you may be able to contribute a significant amount of the sale proceeds to your super account. To be eligible, you should have owned and operated your business for at least 15 years, or you should be aged 55 or above and are retiring. You can sell the business and not pay the capital gains tax without affecting the non-concessional contribution cap of $1.7 million. If you are less than 55 years old, you can sell your business and contribute the tax-free gains into your super account.

Downsizing your home

If you’ve owned and lived in your home for at least 10 years, you can contribute the sale proceeds to your superannuation account without affecting the limit. The contribution is capped at $300,000 per individual, which means you and your spouse can contribute up to $600,000 to your respective accounts. This is an excellent way to make a lump sum super contribution if you’re over 65 and build a larger balance.

While making lump sum contributions to your super could help you to grow your nest egg faster, it’s important to understand the tax implications to avoid any penalties. 

The maximum lump sum contribution to your super account in a financial year depends on factors like your age and the current balance. In some cases, you may be allowed to contribute more than the limit using bring-forward arrangements. However, these rules are complex and can be modified. 

It’s recommended you check with the ATO to understand the applicable rules before making a lump sum payment to your super. You can also seek advice from an independent financial consultant.