For many, superannuation will likely represent one of the biggest assets they have. Making additional contributions whilst you are working can help to ensure that you are able to achieve the lifestyle you want in retirement. In general there are two types of contributions into superannuation:
1. Concessional Contributions (before tax contributions): Concessional Contributions are taxed in the hands of the super fund at 15% as opposed to being taxed personally in your hands at your marginal rate. These types of contributions are limited to $25,000 p.a. It’s important to note that for high income earners (over $250,000 per year) an additional 15% tax will be applied to contributions resulting from earnings over the $250,000 threshold.
2. Non-concessional Contributions (after tax contributions): Non-concessional Contributions are made from after tax dollars – meaning that it has already been taxed at your marginal tax rate, however are not taxed by the super fund. These types of contributions are limited to $100,000 p.a., however you may be able to contribute up to $300,000 in a single year if you choose to bring forward your contribution cap for the following two years.
However, certain strategies may be more appropriate than others based on your needs,
1. Salary Sacrifice (before tax contributions)
Salary sacrifice involves asking your employer to contribute a portion of your pre-tax salary into your superannuation account on your behalf. This is beneficial as when contributed this will be tax at 15%, opposed to if it was received personally and subject to your marginal tax rate.
2. Concessional Personal contributions (before tax contributions)
You can choose to make personal contribution to your superannuation yourself, which allows you to claim a tax deduction on your income tax return, provided you complete a ‘notice of intent’ form to your super before submitting your tax return. If you earn $37,000 or less a year and put some pre-tax money into your super, you might be eligible to receive a refund of the tax paid on your pre-tax super contributions (up to a maximum of $500) into your super account from the Australian Taxation Office (ATO).
3. Non-concessional Personal contributions (after tax contributions)
If you choose to make personal non-concessional contributions, you will not be able to claim a tax deduction for your contributions, however this can provide the ability to build your superannuation balance quicker. Additionally if you earn less than $51,813, the government could also further increase your contributions by making a co-contribution up to a maximum of $500.
4. Spouse contributions
If your spouse earns $37,000 or less and you contribute to their super you could receive a tax offset of up to $540. Providing they earn less than $40,000, you could receive a partial tax offset.
5. Review and/or Consolidate your super
Your super fund should be working for you, so it’s important to review it at least once a year. It’s useful to:
• review your investment options and what other options are available
• look at your level of insurance – is it appropriate to cover your needs?
• pay attention to your fees and premiums, these can add up over time and impact your balance.
Additionally, if you have moved jobs you may have multiple superannuation funds You can do a lost super search through the ATO on your MyGov login to help you track down any lost or missing super and consolidate it into one super fund. This can help to reduce the overall expenses associated with your super, including investment fees and insurance premiums. However, before consolidating make sure you check whether there are any:
• exit or withdrawal fees
• insurance implications, such as making sure your required level of insurance is in place before you consolidate your super.
If you would like to review your options, please contact us and we can help review your superannuation options and suitability of your overall strategy.
This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.