With the end of financial year just around the corner it is a good time to make the most out of your super. Now is a good time to think about how you could grow your super and save for retirement.
Superannuation remains on the most favoured environments within which to build wealth. It can make an ideal place to invest your long-term savings. Making additional contributions can grow your retirement income, and there are potential tax benefits as well. Just keep in mind the restrictions on accessing or withdrawing your money after you contribute to super.
Peter Costello, the former Australian politician who served as Treasurer in the Howard Government, once said “If you want to save, put money into superannuation, you will never find a better savings vehicle.”
Your employer’s compulsory superannuation guarantee contributions alone are unlikely to afford you a comfortable standard of living in retirement and you may want to consider contributing more to your super. Whether this is right for you depends on your current financial position.
Below are 3 options you could consider to help build your super and make it work harder for you.
1. Concessional Contributions
Concessional contributions, also called before-tax contributions, are the funds that go into your super account from your before-tax income. Your concessional contributions can come from a few different sources, such as employer superannuation guarantee amounts, a salary sacrifice arrangement you’ve made, or tax-deductible contributions that you make.
Concessional contributions typically make up the bulk of your super savings and are generally taxed at 15%.
Salary sacrifice is an effective way to boost your super and help you with saving for retirement. It is an arrangement where part of your before-tax wage or salary is paid into your super account instead of being received as take-home pay. There may also be tax advantages for you, depending on how much you earn.
The concessional cap for the 2018/19 financial year is $25,000 regardless of your age, and is the maximum amount of concessional contributions that can be added into your super fund without paying extra tax, if you meet the contribution requirements.
2. Non-Concessional Contributions
Non-concessional contributions are, as you probably guessed, super contributions made from your after-tax income or savings. For example if you work for an employer, making a contribution to super directly from your bank account is considered an after-tax contribution (unless you claim a deduction for the contribution).
Non-concessional contributions are not taxed in your super fund and you do not receive a tax deduction on them.
Whilst non-concessional contributions aren’t taxed when they’re received by your super fund, once the money is added to your account, any investment earnings will be subject to the usual superannuation tax rate of up to 15%.
There are caps on the non-concessional contributions you can make each financial year.
The cap for non-concessional contributions is $100,000 per financial year. If you are under age 65 you can bring forward up to 2 years of the non-concessional cap, allowing you to contribute up to $300,000 at a time, depending on your super balance and any previous non-concessional contributions made recently.
3. Government Co-Contribution
The super co-contribution is designed to assist eligible individuals to save for their retirement. If you are eligible and make personal super contributions during a financial year, the government will match up to half your contribution with a super co-contribution within certain limits.
If you’re a low or middle-income earner and make personal non-concessional (after-tax) contributions to your super fund, the government also makes a contribution (called a co-contribution) up to a maximum amount of $500.
The amount of government co-contribution you receive depends on your income and how much you contribute. Further information on the eligibility for the super co-contribution can be found on the ATO website.
Paying extra into your superannuation now may make a big impact later in retirement. While 30 June is rapidly approaching you still have time to take advantage of end of financial year tax concessions and other opportunities.
About Massey Financial Advice
I am a Brisbane-based Financial Adviser with more than 14 years experience working with professionals to achieve financial freedom. I have clients across Brisbane, including from Ashgrove, The Gap, Kenmore and Chapel Hill.
Sometimes people don’t really understand their financial situation – whether that be their personal cash flow, wealth creation or retirement plan, and this puts their lifestyle at risk. I partner with professionals so that they feel empowered to make the best financial choices for them, their family and their career.
A great first step to preparing for your retirement is to book a cost and obligation free Financial Gap Strategy Session by clicking the link below. This is a free phone call at a time that suits you to discuss what you are working to achieve and discuss how I may be able to help.
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