Time to top up KiwiSaver to make the most of the scheme
Mid-June is top up time for many people in KiwiSaver. If you don’t take action in the next week or two, you could miss out on up to a thousand dollars or so from the government.
First, some background. The KiwiSaver year runs from July 1 to June 30. Every year, soon after June 30, each provider sends to Inland Revenue a list of how much each KiwiSaver member contributed during the year.
The government then matches that amount, up to $1043, in extra money credited to that person’s KiwiSaver account, probably in August to October. This is misleadingly called a tax credit, even though it has nothing to do with tax.
There are two exceptions to the $1043 — strictly speaking $1042.86 — maximum. If you are under 18, you don’t get any tax credit. And pretty much everyone else will get less in their first year in KiwiSaver. Their maximum is proportionate to how much of the July-June year they have been in the scheme — dating from the first day of the month in which they joined.
For example, if you joined in December, your maximum first year tax credit will be seven-twelfths of $1043, or about $608. For more on how to calculate this, see “Incentives” on the “KiwiSaver Basics” page of www.maryholm.com. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]
Once you’ve worked out what your maximum is — an approximate amount will do — think about whether you have contributed at least that much since July 1 last year. If you are an employee, include all deductions made from your pay during June.
If you haven’t yet contributed your maximum tax credit amount, I strongly suggest you do so by June 30.
The matching of your contributions, up to $1043, is one of the main attractions of the scheme. If twice as much money goes into your account, you’ll get twice as much out at the other end. A $100,000 nest egg will be $200,000, and so on.
Everyone also receives the $1000 kick-start, boosting their savings more. And employees get a further boost from employer contributions.
How do you make extra contributions? If you are an employee, you’ll be used to having the money taken out of your pay. But you can’t put in additional money that way. For employees and non-employees alike, there are two ways to pay extra:
- Deposit the money directly with your provider. Almost all providers will accept one-off payments. Email or ring to find out how to do it, and allow a few days for processing.
- Send it via Inland Revenue, in the same way as if you were paying tax. Make a deposit at a Westpac bank, or mail in a cheque with your IRD number on the back and a letter saying the money is for your KiwiSaver account, or use internet banking.
On the internet, use the ‘pay tax’ option, put ‘KSS’ for the tax type, and zero for the period. You can make payments this way as late as June 30 and they will still be counted in this KiwiSaver year.
If you turned 18 during the July-June year, you are eligible for the tax credit for the portion of the year that you are 18.
To get the maximum amount, multiply $1043 by “days”/365. “Days” refers to the number of days between your birthday and 30 June. If your birthday was on June 1, your maximum tax credit would be $1043 times 30/365, which comes to about $86.
You shouldn’t have to tell anyone you have turned 18. Your provider should take care of that.
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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.