An inheritance can often be a large amount of money. Let’s look at the pros and cons of contributing part or all of an inheritance to your super.

Can I put an inheritance into super?

The short answer is yes – it is certainly possible to contribute an inheritance to your super. And depending on your circumstances – particularly in relation to your age and super balance – it may make good sense.

How much can you put into super from an inheritance?

There are two types of super contributions - concessional contributions (which are before-tax) and non-concessional contributions (which are after-tax).

But there are limits – known as contribution caps – that apply to each type.

If you were to contribute an inheritance to superannuation as a lump sum, you may be able to claim a personal tax deduction for the contribution. If you do this, the contributed amount is treated as a concessional contribution – these are currently capped at $30,000 per year .

It’s worth remembering that if you have been lucky enough to receive a particularly large inheritance, you could make use of the carry forward rule to contribute more than the $30,000 outlined above.

If you do not intend to claim a tax deduction for the contribution, then the total amount counts towards your non-concessional contribution cap – from 1 July 2024, this is $120,000 per year. You can also use the bring-forward rule to go above this amount.

Finally, you could use a combination of concessional and non-concessional contributions, depending on your circumstances.

Pros and cons of contributing an inheritance into super

There are several pros and cons of contributing an inheritance into super:

Pros:

Tax benefits: If you contribute the inheritance as a concessional contribution, you can claim a tax deduction for the amount contributed. Also, investment earnings within super are taxed at a lower rate (15%), which can be more tax-efficient compared to holding the inheritance in a personal account. Once you’re in the retirement phase, investment earnings are tax-free.
Compounding growth: By contributing to superannuation and adding to your balance, you can benefit from the power of compounding over a longer period, potentially leading to a larger retirement savings balance.
Investment control: Super funds offer a range of investment options, meaning you could combine your inheritance with your super balance and invest the combined amount under a single investment strategy.

Cons

Access restrictions: Once the money is in your super account, you generally cannot access it until you meet a condition of release, such as reaching preservation age and retiring. This can limit your liquidity and flexibility.
Contribution caps: There are annual caps for both concessional and non-concessional contributions. Exceeding these caps can result in penalties and additional taxes.

There’s a lot to consider. It may be wise to talk to an independent financial adviser. They can help you work out what your goals are and how to combine an inheritance with your assets, liabilities, super and other investments to effectively meet your goals.

Receiving an inheritance: Can I contribute it to my super?