Thinking of using your super to help buy your first home? The First Home Super Saver (FHSS) scheme lets you do exactly that. But, know that it's not a total free-for-all. There are limitations on how much you can contribute and how much you can withdraw to put towards your first home. Here’s the lowdown.

Wait, what’s the FHSS scheme again?

The First Home Super Saver scheme (which we’re hereby referring to as the FHSS scheme) is a government initiative designed to help improve housing affordability. It was introduced back in the 2017-18 Federal Budget.

Under the scheme, you can make voluntary super contributions that can be put towards buying your first home. The advantage of saving this way is that it may offer a lower tax rate on contributions, which may earn interest while they’re sitting in your super.

You can read more about the initiative, along with its pros, cons and whether it could be right for you, in our comprehensive guide to the FHSS scheme .

How can I contribute to the FHSS scheme?

Unlike the compulsory employer payments you get on top of your salary, voluntary contributions are amounts you choose to put into super from your own money.

You could opt for before-tax concessional contributions, where they come out of your pre-tax income and are taxed at just 15%. Examples of before-tax concessional contributions include salary sacrifice and personal contributions.

You could also make post-tax non-concessional contributions, where your contributions have already been taxed at your usual income tax rate. Post-tax contributions include personal contributions and spouse contributions.

Not all contributions are eligible for the FHSS scheme, though. Unfortunately, spouse contributions, government co-contributions and your regular employer payments don't count.

How much can I contribute under the FHSS scheme?

Now, there are a few caveats – namely around how much you can contribute and how much you can withdraw.

Under the FHSS scheme, your contributions are subject to the general contributions caps . Currently, each financial year you can put in:

• Up to $30,000 in before-tax concessional contributions
• Up to $120,000 in after-tax non-concessional contributions

However, there’s also a limit on the amount of super you can withdraw to use in the FHSS scheme. You’re only able to retrieve a maximum of $15,000 per financial year up to a grand total of $50,000 across all years, plus any interest earnings you make over those years. (Associated earnings don’t count towards the $50,000 cap.)

You can also join forces with a partner, family member or friend and use up to $50,000 each.

Things get a little more complicated when it comes to the types of contributions you can withdraw. The FHSS scheme lets you release:

• 100% of eligible after-tax contributions that you haven’t claimed a deduction for
• 85% of eligible before-tax contributions that you have claimed a deduction for
• Associated earnings calculated using the deemed rate

Also note that when you retrieve funds under the FHSS scheme, they’re subject to a concessional tax rate. The tax applied is your marginal tax rate minus a 30% offset. While this can deliver a pretty decent tax cut compared to saving outside super, it’s always best to be fully aware of the scheme’s conditions. Reach out to a tax accountant if you need help understanding the specifics.

What happens if I exceed the caps?

Even though the FHSS scheme has limits, you are able to put more money into your super. The major drawback of doing so is that you’re taxed at a much higher rate, potentially negating the tax benefits of the FHSS scheme.

If you pay more than $30,000 in before-tax contributions, any excess amounts will be added to your taxable income and taxed at your marginal tax rate.

If you make more than $120,000 in after-tax contributions, you’ll be hit with a flat tax rate of 47%. Alternatively, you can withdraw excess contributions, but these will be taxed, too. Again, this is where a tax accountant can come in really handy – they can help you navigate the complexities around super and tax.

Whether you’re making before or after-tax contributions, you may be able to access "carry-forward" or "bring-forward" arrangements. These allow you to use caps from previous or future years to maximise your contributions in the current year.

We explain all of this in more detail in our guide to how your super is taxed .

What else can I do once I reach the caps?

If you’ve hit the contributions caps, are there any avenues you can take to save for your first home? There sure are.

Savings account

A savings account can be another effective way to save for your first home, and is probably the most traditional path towards homeownership.

You could take the money you were previously contributing to your super under the FHSS scheme and place it in a savings account instead. Most of these accounts offer a decent interest rate of anywhere from 2-5%, or possibly even more if interest rates are high.

The main advantage of a savings account is that it’s typically a fairly safe investment because the government will guarantee up to $250,000 of your money. However, the main drawback is that the returns on savings accounts aren’t always very lucrative. Plus, inflation can sometimes make your money stagnate or possibly even decrease in purchasing power.

Term deposit

Term deposits are a little like savings accounts, but they work quite differently. You lock in your money for a specified period and, over that period, you receive a fixed interest rate – often somewhere around 4-5%. Once again, you could think about putting the money you were contributing to your super into a term deposit to potentially earn a higher and more stable return.

Many opt for term deposits because of their relatively low risk – they offer fixed returns and the government once again guarantees up to $250,000. However, unless you pay a fee, you won’t be able to touch your money until the term expires. And i during

u could use that extra money is to invest. There are several ways you can invest, including via ETFs , individual shares, managed funds and LICs . You can also rentvest , whereby you invest in property while renting your residence.

The reason some first home buyers choose to invest rather than save is that there’s the potential for significantly higher returns. On average, the share market grows about 6-9% per year. Some shares pay dividends too, possibly offering a passive income source.

That being said, the share market does come with risk, which is why it’s not for everyone. There’s always the chance of losing your money. Do your research and understand the possible pitfalls of investing, as well as your risk tolerance , before you put your money in shares.

First Home Guarantee

The First Home Guarantee (FHBG) is a nationwide government initiative designed to help buyers get into the housing market.

Under the FHBG, you only need a minimum 5% deposit (as opposed to the traditional 20%), with the government guaranteeing the remaining 15% as a loan. The point of the scheme is that it removes the need for lender’s mortgage insurance or a family guarantor.

There’s a whole set of eligibility criteria attached to it. Effectively, though, you need to be a first-time buyer or someone who hasn’t owned property in 10 years. You also need to earn under a certain amount, and be buying a property up to a maximum value.

There are also similar schemes like the Regional First Home Buyer Guarantee (RFHBG) and the Family Home Guarantee (FHG).

You can learn more about how the FHBG works in our guide on the First Home Guarantee .

There are state and territory-based initiatives, too, including first home owner grants, shared equity schemes and stamp duty concessions. Look at your local government’s website for more info.

Applying for the FHSS scheme

Before you apply for the FHSS scheme, it’s vital to understand how the program works and the conditions that apply to both your contributions and your withdrawals.

The scheme is also subject to change, and the government is regularly reviewing and updating both contribution caps and withdrawal limits. Check the ATO website for the latest figures.

And remember to reach out to a licensed financial adviser or tax accountant if you need support navigating the FHSS scheme – or your finances in general. This article is general in the info it provides, but an expert can give you advice tailored to your circumstances.