Making super contributions in the financial year you turn 65 can be tricky. This is because special ‘transitional’ super rules apply when you’re 65, especially if you want to make use of the ‘bring forward’ contributions rule.

Let’s take a look at how this rule works before and after your 65th birthday.

As you’ll recall from my previous article on How to use the bring-forward rule effectively, anyone aged under 65 can make super contributions whenever they like, and they can even make some non-concessional contributions in advance.

Unfortunately, this three-year-in-advance rule goes out the window once you turn 65. But, in the financial year of your 65th birthday, there’s a special transitional rule that you should know about, and it goes like this:

Suppose you’re 64 years old on 1 July 2011 and you want to take advantage of the ‘bring forward’ rule. You plan for the current 2011/12 financial year to be the first year in the potential three-year non-concessional contributions period. (Remember: under the bring-forward rule, you can break the $150,000 annual contributions cap as long as total contributions for the three-year period don’t exceed $450,000.)

So you plan to make the maximum non-concessional contribution of $450,000 to your super during 2011/12, followed by no contributions during the following two financial years. This keeps you within the limit of the bring-forward rule, and so no additional tax will apply.

But what happens when you turn 65 given that the rule doesn’t exist for those in that age bracket? Will you be hit with a penalty tax for breaching the annual $150,000 cap? And, do you need to pass the work test that applies to those over the age of 65 who want to make contributions?

Thankfully, the answer is no, and no. To allow for the transition between the age brackets, the super rules don’t insist that you have to satisfy the gainful employment test if you use the bring-forward rule before you turn 65.

However, the important difference compared with someone where age is not a factor is that you must make sure you don’t breach the normal $150,000 annual contributions cap once you turn 65 – even if you would have normally been eligible to make a larger contribution under the bring-forward rule.

Take this example: Instead of contributing $450,000 in fiscal 2011/12, you decide to put $250,000 into your super and then contribute the remaining $200,000 over the following two years.

In this instance, because you’ll be 65 when making contributions in the last two years of the three-year period, you will have to pass the work test. You’ll also have to keep within the $150,000 annual cap, otherwise the excess contributions will be taxed at a lofty 46.5%. So, you would need to split the remaining $200,000 in contributions over two years, perhaps with one payment of $150,000 in 2012/13 and another of $50,000 in 2013/14.

Once you’ve turned 65, you can’t initiate a new three-year bring-forward period.

The general rule of thumb for anyone who wants to use the bring-forward rule is: consider the contributions that were made in the previous two financial years to determine in which year your three-year period began. Getting this wrong could result in you losing a large chunk of your super to tax.

Next Thursday, I’ll look at the gainful employment test that applies when you turn 65. I’ll then review the essential rules you need to follow if you want to claim a tax deduction for your personal super contributions.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Also in today’s Switzer Super Report

• Peter Switzer: Six reasons why it’s better to invest for the long term
• JP Goldman: How risky is your ETF?
• Charlie Aitken: Have we hit the bottom?