Wouldn’t it be great to get an extra $521 from the government – not just once, but every year? That’s how much you stand to gain from paying enough into your KiwiSaver account to gain the full member tax credit each year. Here’s how you can work out if you’re getting the full member tax credit.
Are you missing out on free money?
Not many of us would turn down $521.43, yet that’s exactly what we’re doing if we don’t take advantage of the government’s annual contribution towards our KiwiSaver account.
In 2016, 1.1 million KiwiSaver members missed out on the government’s full contribution – called a member tax credit.
A survey by Inland Revenue found that 62% of those who didn’t receive the full amount said they would have likely contributed more to qualify - if they had known about it.
To qualify for MTCs, you’ll need to be a contributing member aged 18 or over, mainly living in New Zealand and not be eligible for a retirement withdrawal.
And if you want the full $521.43 each year, here’s how:
- Contribute enough
The maths is simple: for every dollar you put into KiwiSaver, the government contributes 50 cents – up to a maximum of $521.43.
To get the full member tax credit contribution you need to put in at least $1,042.86 each year between 1 July and 30 June. (Note: Employer contributions, government contributions and amounts transferred from Australia under the Trans-Tasman retirement savings portability do not count towards eligibility for the member tax credit).
If you joined KiwiSaver partway through the KiwiSaver year your member tax credit will be based on how many days you’ve been a member of the scheme as well as how much you’re putting into it.
Similarly, if you turned 18 during the year, the government’s contribution will be based on the number of days in the year that you were 18 for.
- Decide how to pay
If you contribute less than $1,042.86 through your pay – or if you’re self-employed, a stay-at-home parent or on a contributions holiday – you can make voluntary contributions as a lump sum or through regular direct debits to ensure you receive the full member tax credit.
For those of us who would struggle to stump up $1,042.86 in one go, automatic payments may be a better choice.
Paying $20.06 a week – $87 a month – is enough to gain the full member tax credit.
If you’re with the Kiwi Wealth KiwiSaver Scheme, it’s easy to make payments: simply set up a direct debit from your bank account to your KiwiSaver account, or an automatic payment through internet banking.
Any additional voluntary contributions you make will generally be locked in until you are eligible to make a final withdrawal from your KiwiSaver account (and subject to investment risks and potential loss in value), so make sure you can afford to make them.
- Choose your rate
If you’re employed and want to receive the full member tax credit, it’s important to choose the right contribution rate.
For example, if your income is $26,000 and your contribution rate is 3%, you’ll be putting in a total of $780 annually. The government will contribute $390, but will raise it to the full $521.43 if you make a voluntary contribution of $263 to reach the magic number of $1,042.86.
If you earn $26,000 but raise your contribution rate to 4%, your annual contribution will be $1040. That means you’ll only need to dip into your pocket for an extra $3 to get the full member tax credit.
- Don’t be late!
Member tax credits are calculated based on how much you’ve put into your KiwiSaver account between 1 July and 30 June.
If you’re planning to make a lump sum payment, make a note now so you don’t miss your chance to gain the full government contribution.
- Sit back and relax
Job done! There’s nothing more you need to do – your KiwiSaver scheme provider will claim the tax credit on your behalf after 1 July.
If you’re a Kiwi Wealth KiwiSaver Scheme member, you should see the money in your account before the end of July.
It’s the perfect time to congratulate yourself for adding to your retirement savings, and to start planning what else you could do to make the most of your KiwiSaver account.
Once received, member tax credits (MTC’s) will generally be locked in until you are eligible make a final withdrawal from your KiwiSaver account. MTC’s will also be subject to the same risks as other contributions to your KiwiSaver account are, such as investment risks, including possible loss of value.
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