Table of Contents

Superannuation remains one of the most effective means of building wealth for retirement. While most individuals focus on their own super contributions, there’s a powerful strategy that many overlook: spouse super contributions. This is a method that allows individuals to contribute to their spouse’s super account, offering a range of financial benefits both now and into retirement.

Spouse super contributions can be particularly beneficial for couples where one partner has a lower superannuation balance due to career breaks, part-time work, or lower income. By making contributions to your spouse’s super, not only do you help boost their retirement savings, but you can also enjoy tax advantages along the way. Understanding how these contributions work is key to maximising the opportunities available within Australia’s superannuation system.

What Are Spouse Super Contributions?

Spouse super contributions are voluntary payments made by one individual into their spouse’s superannuation account. These contributions help to build the receiving spouse’s retirement savings, especially if their super balance is significantly lower due to periods of unemployment, parental leave, or part-time work.

To be eligible for spouse super contributions, the receiving spouse must be either under 75 years of age and not retired. Additionally, the spouse receiving the contributions should have an income below a certain threshold (discussed further below) to qualify for additional tax benefits. Spouse contributions provide a flexible way to manage retirement savings as a couple, ensuring that both partners build sufficient wealth for their retirement years.

Benefits of Making Spouse Super Contributions

Making spouse super contributions offers a number of financial benefits. One of the primary advantages is the ability to balance retirement savings between both spouses. In many households, one partner may have taken time off work to care for children or has worked part-time, resulting in a lower superannuation balance.

By contributing to your spouse’s super, you can help level the playing field, ensuring both partners have a more equal and substantial retirement fund. Additionally, there are tax benefits to be gained for the contributing spouse, including a potential tax offset (discussed below). Beyond immediate financial gains, boosting your spouse’s super can lead to a more secure retirement for both partners, enhancing their ability to enjoy a comfortable lifestyle in later years.

How Spouse Super Contribution Tax Offsets Work

One of the key incentives for making spouse super contributions is the tax offset available to the contributing spouse. If your spouse’s income is below $37,000, you may be eligible for a tax offset of up to 18% on contributions of up to $3,000. This means you could receive a maximum tax offset of $540, reducing your overall tax liability.

To qualify for the tax offset, the contributing spouse must make after-tax contributions into their partner’s super fund, and the receiving spouse’s income must not exceed $40,000 (with a gradual phase-out of the offset). This tax benefit is particularly valuable for households where one partner has a significantly lower income or is not working, as it incentivises saving for retirement while reducing taxable income.

Who Should Consider Spouse Super Contributions?

Spouse super contributions are particularly beneficial for couples with one partner earning significantly less than the other. If one spouse is on a lower income due to part-time work or extended periods of leave, making contributions to their super can help build their retirement savings. Couples nearing retirement may also consider this strategy to balance superannuation balances before both retire.

Another scenario where spouse contributions make sense is when a couple is looking to optimise their overall tax position. By taking advantage of the tax offset available through spouse contributions, higher-earning partners can reduce their tax burden while boosting the long-term financial security of their lower-income spouse.

Contribution Caps and Limits

Like other types of super contributions, spouse super contributions are subject to contribution caps. The most relevant limit for these contributions is the non-concessional (after-tax) contributions cap, which currently sits at $120,000 per financial year. If you exceed this cap, there may be tax penalties, so it’s important to keep track of all contributions across both super accounts.

In addition, the receiving spouse must have a total superannuation balance below $1.9 million to receive spouse contributions without incurring additional tax liabilities. Exceeding this limit means the contributions will be subject to excess contributions tax. Understanding these caps and limits is crucial for making the most of spouse super contributions without triggering unintended tax consequences.

Spouse Super Contributions vs. Splitting Contributions

While spouse super contributions involve direct contributions to a partner’s super account, splitting contributions is another strategy that can be considered. Contribution splitting allows a spouse to transfer up to 85% of their employer super contributions (such as SG contributions) to their partner’s super account after the end of each financial year.

While both methods aim to balance superannuation between partners, the key difference lies in timing and control. Spouse contributions are made voluntarily during the financial year, while contribution splitting occurs after the financial year ends. Depending on your financial goals and circumstances, one option may suit your needs better than the other. It’s essential to evaluate the pros and cons of both strategies in consultation with a financial adviser.

How to Make Spouse Super Contributions

Making a spouse super contribution is a relatively straightforward process. Firstly, you’ll need to ensure that your spouse is eligible to receive contributions. Once confirmed, you can make after-tax contributions directly into their superannuation account by arranging a transfer from your bank or using your super fund’s contribution process.

It’s important to notify your super fund that the payment is a spouse contribution to ensure it is correctly categorised. This also enables you to claim the tax offset when filing your income tax return. To avoid any errors, ensure that the receiving spouse’s super fund details are up-to-date and that you have kept records of the contributions made throughout the year.

Superannuation and the Non-Working Spouse

For households where one spouse is not working or earning a minimal income, making super contributions on their behalf is vital to ensuring they build a sufficient retirement nest egg. The non-working or lower-income spouse can often face a super gap due to time out of the workforce, particularly for those raising children or caring for family members.

Spouse contributions are an effective way to fill this gap, providing the non-working partner with the means to accumulate retirement savings even during periods of reduced income. This approach ensures both partners are well-positioned for a financially secure retirement, avoiding the risk of one spouse having significantly less super than the other.

Can Spouse Contributions Boost Age Pension Eligibility?

Spouse super contributions can also play a role in optimising Age Pension eligibility. By contributing to a lower-income spouse’s super fund, households can potentially reduce the assessable assets of the higher-earning spouse, thereby improving eligibility for the Age Pension or reducing means-tested pension reductions.

Since superannuation is generally not included in the assets test until the individual reaches Age Pension age, contributing to a younger spouse’s super fund may temporarily reduce the household’s overall assessable assets. This can create strategic opportunities for maximising retirement income from both superannuation and the Age Pension. However, this strategy requires careful planning to avoid any unintended consequences.

Spouse Contributions and SMSFs

If you and your spouse manage your superannuation through a Self-Managed Super Fund (SMSF), spouse contributions can still be made within the SMSF structure. The flexibility of SMSFs allows couples to manage spouse contributions in alignment with their broader investment strategy, ensuring both partners’ retirement savings grow in a coordinated manner.

Spouse contributions within an SMSF operate similarly to those in retail or industry super funds, but SMSF trustees need to ensure that contributions are properly documented and comply with contribution caps. Working with a financial adviser experienced in SMSFs can help you optimise these contributions while ensuring your fund remains compliant with superannuation regulations.

Conclusion

Navigating the rules and benefits of spouse super contributions can be complex, particularly when balancing contribution limits, tax offsets, and long-term financial planning. Consulting with a financial adviser can help you make informed decisions that maximise the benefits of contributing to your spouse’s super while aligning with your broader retirement goals.

A Toowoomba financial adviser, such as Wealth Factory, can provide tailored advice on how to structure your contributions, whether spouse contributions or splitting contributions are more suitable, and how to take full advantage of the tax benefits. By working with a professional, you can ensure that both you and your spouse are on track for a financially secure retirement, supported by a well-thought-out superannuation strategy.