Superannuation really should be fairly straight forward, but instead all governments like to tinker with it.
So here are some of the basics:
- When you are working, your boss will contribute 9.5% of your wage to your superannuation as a minimum.
- This money is generally taxed at 15% on its way into your superannuation Account.
Once added to your Super Fund, it is invested and preserved until you retire.
- Under the current rules, if you start a pension after the age of 60, your pension payments will be tax free to you.
Now that you have a few of the basics sorted out, let’s look at a few more of the important issues in a bit more detail.
Whilst your boss will pay a minimum 9.5% into your Super Fund, you can decide to make additional superannuation contributions. This is generally done as a Salary Sacrifice, where you give up some of your wage and have that paid into your Super Account.
So why would you do that? There are 2 main reasons; you want to put more money aside for retirement and often the biggest driver – to save Tax.
Both the compulsory Super (9.5 %) and Salary Sacrifice amounts are treated as Concessional Contributions. This means they are subject to Concessional Tax Rates – generally 15% (for high income earners > $250k it’s 30%). Paying 15% Super Contributions Tax compares very favourably to wage taxes of 19-47%.
So as you can see, popping some extra cash into Super can be a smart strategy.
We mentioned Concessional Contributions just before. Getting a Tax break on Super Contributions does come with some restrictions. Depending on your age, there are limits on how much money can go into Super each year at the lower Tax rate of 15%.
The maximum Concessional Contribution is $25,000 for all workers aged under 65.
Many people will work backwards in order to get the maximum into Super. Start with $25,000, subtract how much work will contribute as part of your compulsory 9.5% Superannuation (say you earn $55,000 – your compulsory Super is $5,225) which will leave up to $19,775 that can be salary sacrificed into Super.
As of the 1st July 2017, you no longer need to enter into a Salary Sacrifice arrangement with your employer in order to get extra money into Superannuation, you can now make a personal contribution to your Super Fund and claim this a tax deduction and be entitled to tax credit when you lodge your tax return for the year.
There are few more important considerations and that’s where a GNS Group Financial Adviser can help you to get the maximum super contributions too.
After-tax contributions are called Non Concessional Contributions and go into super tax free and can be withdrawn tax free in retirement as well.
There is also a limit of $100,000 pa or you can put up to 3 years worth of contributions into super in one go ($300,000) so long as you don’t exceed the limit in the next 3 years. Commonly this is referred to the bring forward rules.
An example of how this could be used would be following the sale of the family home, Mary and Jason have downsized and freed up $600,000. Jason has already retired and is aged 66, so he can not contribute to super. Having not made any previous non concessional contributions, Mary can contribute $300,000 this year to super and will keep the remaining $300,000 in her savings account.
Before any large contributions are made, professional advice is always highly recommended to make sure you are maximising the contributions and your retirement savings. This is where a GNS Group Financial Adviser can play an important role in guiding you through retirement planning.
If you are based in Melbourne, we recommend coming in for a visit to our Ivanhoe offices to discuss your option. We are one of the most knowledgable firms regarding superannuation companies Melbourne has to offer, and we’d love for you to take advantage of that.
Should you be based outside of Ivanhoe, or even Melbourne, we can initiate conversations over the phone.