Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

KiwiSaver: Top up before you hit 65 to get Govt cash

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Contribution must be made before reaching milestone to get the highest possible payment for that year.

Top up the tank before you turn 65 - or you might miss out on the full Government KiwiSaver contribution. Photo / Thinkstock
Top up the tank before you turn 65 - or you might miss out on the full Government KiwiSaver contribution. Photo / Thinkstock

I turned 65 on July 13. I believe the government tax credit stops when you turn 65 and the member tax credit year starts anew on July 1. So my question is: If I deposited $1042.86 before July 13 will I be eligible for the full member tax credit?

It sounds as if you've got a pretty good handle on member tax credits, but I'll recap the basics before answering you.

The member tax credit is essentially a yearly cash gift from the Government in exchange for contributing to KiwiSaver.

You need to be over 18 and live in New Zealand to be eligible.

At present the member tax credit works out at $521.43 a year - trimmed back on June 30, 2011, from $1042.86 - and is not counted as taxable income.

Although it's an annual payment the "KiwiSaver year" runs from the start of July to the end of June, so contributions and payments are calculated over that period rather than the calendar year.

To get the full member tax credit you need to put at least $1042.86 a year into your KiwiSaver account.

That works out at $20 a week or $87 a month, which is the amount the self-employed, the non-employed and anyone on a contributions holiday will need to put in to receive the full credit.

But if you can't afford the full $1043 each year every dollar you add will give you a 50c tax credit payment, so adding $100 will entitle you to $50 from the Government at the end of the KiwiSaver year. Someone earning $35,000 a year and contributing the minimum 3 per cent of their pay to KiwiSaver would make $1050 worth of contributions and automatically get the full $521.43 they were entitled to.

If you earned less than that you may need to contact your KiwiSaver provider directly to make a top-up payment to get the maximum amount.

For example, if you were earning $26,000 a year and contributing at the 3 per cent rate you would have added $780 through your salary deductions and be in line to get $390 paid in member tax credits.

By chipping in $262.86 more you would be able to get a further $131.43 from the Government and get the full tax credit.

Sean Donovan, KiwiSaver associate at Milford Asset Management, has the real oil on what happens when you hit 65.

"The Government will stop contributing member tax credits to your KiwiSaver account once you reach your age of eligibility," Donovan says. "This means you have been in KiwiSaver for a full five years and reached the age of retirement, now 65.

"The amount of member tax credits you are eligible for is pro-rated based on the number of days before you reach your age of eligibility within the KiwiSaver year (July 1 to June 30).

"So, for example, if you turned 65 halfway through the KiwiSaver year, you would only be eligible for half of the normal total $521.43 benefit.

"If you wish to maximise this, you only need to contribute the amount that would secure your pro-rated benefit."

He adds that you must get the money to your provider before you reach your age of eligibility otherwise it will not count.

The same pro rata equation applies if you join KiwiSaver or turn 18 part-way through the year.

Other than ensuring you've paid in enough to get the full tax credit you don't need to do anything more - your provider will claim your tax credit on your behalf.

The tax credits should show up in your KiwiSaver account within a month of your provider making the claim.


Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the Herald's panel of industry players email Helen Twose, helentwose@gmail.com.

- NZ Herald

Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose is a freelance business journalist who writes regularly about KiwiSaver and entrepreneurial companies. She has written for the Business Herald since 2006, covering the telecommunications sector, but has more recently focused on personal finance and profiling successful businesses.

Read more by Helen Twose

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