Starting July 1, 2025, the cap on funds that can be moved into a tax-free retirement account will rise to $2 million. Each year, advisors eagerly anticipate the release of December’s inflation figures. The rationale is straightforward: the transfer balance cap, which determines how much can be shifted into a tax-free retirement account, is linked to the Consumer Price Index (CPI) published every December. When inflation rises, the general transfer balance cap adjusts in $100,000 increments at the start of the new financial year. In December 2024, the inflation rate prompted an increase in the cap from $1.9 million to $2 million.
Understanding the transfer balance cap is crucial because it varies for each individual. If you have already begun receiving a retirement income stream, any increase due to indexation will only apply to your unused transfer balance cap.
Planning to Retire in 2025?
If you are thinking about retiring, either fully or partially, the indexation of the transfer balance cap offers a unique opportunity to boost the amount you can transfer into your tax-free retirement account. For instance, if you start your retirement income stream for the first time in June 2025, your transfer balance cap will be $1.9 million. However, if you delay until July 2025, your cap will increase to $2 million, providing an additional $100,000 tax-free.
Already Receiving a Pension?
For those already receiving a retirement income stream, indexation affects only the unused portion of your transfer balance cap. Therefore, you might not experience the full $100,000 increase on July 1, 2025.
How to Check Your Cap
Your superannuation fund reports the value of your interests to the ATO. You can access your personal transfer balance cap, available cap space, and transfer balance account transactions online via the ATO link in myGov. If you manage a self-managed superannuation fund (SMSF), ensuring that your reporting obligations are current is crucial.
