Right-sizing your home could give your super a boost
When people talk about downsizing, they often picture selling a big family home and moving into a smaller place.
But downsizing isn’t always about having less. It can be about finding a home that better suits the life you’re living now.
Maybe the kids have moved out and you no longer need four bedrooms. Maybe you’re tired of maintaining a big garden, want to be closer to family or would rather spend your weekends travelling than cleaning the house.
For some people, right-sizing means moving into a smaller property. For others, it might mean moving somewhere with less maintenance, better accessibility or a different lifestyle.
And while the lifestyle benefits can be significant, there’s another consideration: what happens to the money when you sell your home?
If you have money left over after selling your property and buying your next home, you may be able to put some of it into super through a downsizer contribution.
Here’s how it works.
What is a downsizer contribution?
A downsizer contribution allows eligible Australians to contribute some of the proceeds from selling their home into super.
You can contribute up to $300,000 per person, or $600,000 for a couple if both people are eligible. Combined contributions can’t exceed the eligible sale proceeds.
One of the biggest benefits is that downsizer contributions don’t count towards your usual annual concessional or non-concessional contribution caps.
They also don’t require you to meet the work test, and there is no maximum age limit.
This can make downsizer contributions useful for people who want to boost their retirement savings after selling a property, including those who may have limited options to make other types of super contributions.
But there’s an important point to understand: you don’t have to downsize to a cheaper home to qualify, and you don’t have to use the money to buy another home. The rules focus on the eligible home you’ve sold and whether you meet the contribution requirements.
Why people are right-sizing their homes
The decision to sell the family home isn’t always driven by money.
For many people, it’s about making life easier or better suited to their next stage.
Common reasons include:
- Less maintenance: A smaller or newer property may mean less time and money spent on repairs, gardening and upkeep.
- A better location: Moving closer to family, friends, shops, healthcare or public transport can make everyday life easier.
- Changing family needs: Once children have moved out, a large family home might no longer be practical.
- Accessibility: A single-level home or property with better access may suit changing needs over time.
- More freedom: Some people want to travel more, spend less time managing a property or free up money for experiences.
- Improving cash flow: Lower housing costs can reduce ongoing expenses, depending on the property and move.
The financial outcome will look different for everyone. Selling a property comes with costs, and buying another home can involve stamp duty, legal fees, moving expenses and other costs.
That’s why it’s worth looking at the whole picture before deciding whether right-sizing makes sense.
TIP: Start with the lifestyle you want, not just the property price. Think about where you want to live, what you want your weekly expenses to look like and how much flexibility you want in retirement.
What if you have money left over after selling?
This is where downsizer contributions may come into the conversation.
Imagine a couple sells their family home for $1.2 million and buys their next home for $800,000.
The $400,000 difference is before selling costs, buying costs and any other expenses associated with the move. These costs affect how much cash they have available.
If both meet the eligibility requirements, they may be able to make downsizer contributions. Each eligible person can contribute up to $300,000, and their combined contributions can’t exceed the eligible sale proceeds. The contribution limit is based on those proceeds, not simply the difference between the old and new home’s prices or the cash left after buying the next home. Whether making a contribution is affordable is a separate question.
But right-sizing doesn’t always leave a surplus. You might sell your home and use most of the money to buy your next property, or you might move somewhere more expensive because it better suits your needs.
That’s fine, too. A downsizer contribution is an option to consider when the circumstances fit, not a reason to move house.
TIP: Before making plans for any surplus, calculate the likely sale proceeds, selling costs, purchase price and buying costs. Then work out how much money, if any, you expect to have available.
Who is eligible to make a downsizer contribution?
There are several requirements you need to meet.
Generally, you must:
- Be aged 55 or older when you make the contribution.
- Have sold an eligible home in Australia that you or your spouse owned for at least 10 years.
- Meet the main residence capital gains tax exemption requirements for the home, either fully or partially, or meet the relevant rules for a pre-CGT asset.
- Make the contribution within 90 days of receiving the sale proceeds, usually the settlement date, unless the ATO grants an extension.
- Not have previously made a downsizer contribution from the sale of another home.
- Provide your super fund with the required Downsizer contribution into super form before or at the time you make the contribution.
You don’t have to buy another property, and you don’t need to be retired to make a downsizer contribution.
There is also no total super balance limit that automatically prevents you from making one. However, your total super balance and transfer balance cap can still matter when deciding what happens to the money after it enters super.
Eligibility can be more complicated in some situations, so check the rules that apply to your circumstances before proceeding.
TIP: Read the government’s downsizer contribution rules before making a contribution.
How much can you contribute?
An eligible person can contribute up to $300,000 from the proceeds of selling their home.
For a couple, that can mean up to $600,000 combined if both people qualify and there are sufficient eligible proceeds.
Each person’s contribution is capped at $300,000. The combined total contributed by you and your spouse from the same sale cannot exceed the eligible proceeds.
You may be able to split your downsizer contribution across super funds. Check the requirements and provide a separate downsizer contribution form for each contribution.
Unlike some other super contributions, downsizer contributions don’t count towards the usual concessional or non-concessional contribution caps.
They are not tax-deductible, though, and making one doesn’t automatically mean you can transfer the entire amount into a retirement income stream.
TIP: If you’re considering contributions for both members of a couple, work out how much each person can contribute before sending money to either super fund. Check the eligible proceeds and each person’s eligibility.
What happens to the money once it’s in super?
A downsizer contribution becomes part of your super balance, where it can be invested according to your fund’s investment options.
Depending on your circumstances, you may leave the money in accumulation phase or, if eligible, use it to help fund a retirement income stream.
There are a few things to keep in mind.
Investment earnings and tax
If the money stays in accumulation phase, investment earnings are generally taxed under the usual super rules.
If you later transfer eligible money into a retirement-phase income stream, investment earnings may receive different tax treatment, subject to the applicable rules and limits.
The transfer balance cap
The downsizer contribution rules don’t remove the transfer balance cap.
If you want to move money into a retirement-phase income stream, the amount you can transfer is subject to your available personal transfer balance cap. Any amount you can’t transfer may remain in accumulation phase.
The Age Pension
Your former home may have been exempt from the Age Pension assets test while it was your principal home. Once you sell it, the way the sale proceeds are held and used can affect your eligibility for the Age Pension.
Money contributed to super may also be assessed under the relevant means-testing rules, depending on your age and circumstances. Services Australia explains how selling or moving out of a home may affect your payment.
TIP: Don’t look at a downsizer contribution in isolation. Consider your super, other assets, retirement income and potential Age Pension eligibility together before making a decision.
Is a downsizer contribution right for you?
A downsizer contribution can be a useful way to boost super after selling your home, particularly if you have money available that you don’t need for your next property or other immediate expenses.
But it won’t suit everyone.
You may need the money to purchase your next home, cover moving costs, pay off debt or maintain a cash reserve. You should also consider the impact on your retirement income, investment strategy and government benefits.
The best decision depends on your own circumstances and what you want the next stage of life to look like.
Check your super with Rask
Thinking about right-sizing your home? It’s worth reviewing your super before you make a decision about what to do with any money left over.
Check your fund for details of your balance, investments, fees and insurance. The Rask Super Checker can help you explore an indicative projection using your current super balance and assumptions.
If you’re considering a property sale, a downsizer contribution or how to structure your retirement finances, Rask Financial Advice can help you understand your options and how they fit into your broader financial situation.
Explore Rask Financial Advice.
Right-sizing your home is about more than the number of bedrooms. It’s about making your home, finances and lifestyle work for the life you want next. If a downsizer contribution is available to you, it may be one more option worth exploring.
This article contains general financial information only and does not take into account your objectives, financial situation or needs. Consider your own circumstances and seek personal advice before acting on anything discussed.
