As the famous quote goes “If you fail to PLAN you plan to FAIL”
There is no better time than the PRESENT to be planning for your future. Whilst stopping work at a later time in your life (often called retirement) may seem a long way away, the sooner you start learning how to save smarter, the more comfortable you will feel that you’re on track to meet your future financial needs.
Superannuation is often thought of as a boring or dry subject and yet it can be both exciting and fulfilling to know that you’re in control. Your future personal well-being is of utmost importance and that is what is ahead of you.
How to grow your Super faster
By now you should well be aware that super is meant to assist you to live comfortably in your post working life years. Throughout your employment career, your employer will play a big part in helping you save by making what’s called the Super Guarantee contributions into your super account. Topping up your super now to increase your balance down the track makes perfect sense, so let’s see how you can do that.
Salary Sacrificing part of your salary to super
Forgoing a part of your salary and paying the amount into super can help you save faster and also save on tax. If you choose to sacrifice an amount from your take home pay and pay it into your super, it will no longer be subject to your PAYG tax rate, otherwise known as your marginal rate of tax. The rate of tax can be 19% or as high as 45% plus the 2% Medicare levy, (Ref: Australian Income Tax Rates). The amount that you forgo in salary is then contributed into your super and the contribution is taxed at a rate of 15% and this is known as a ‘contribution tax’. By re-directing the amount into your super, it demonstrates the tax savings you can achieve in addition to boosting your super balance. Of course, everyone is on a different tax scale, so you should explore this option carefully and seek advice.
Making after tax contributions to super
After tax contributions are amounts that have already been taxed, such as any amount that comes from your salary after your employer has deducted PAYG tax. It can also include amounts that have been gifted to you or amounts that may have formed part of an inheritance. When paying these amounts into super, the 15% contributions tax will not be deducted because these amounts have been taxed previously.
Help the government to make extra contributions to super
If you are considered by the government to be a low or middle-income earner, the government will make extra contributions to your super up to a maximum of $500 per year provided you are also making after tax contributions to your super. This is called a ‘super co-contribution’ and be eligible to receive it. Generally speaking if you meet the initial requirements and your income is below the lower income threshold of $41,112 for the 2021-2022 tax year and you have made $1,000 as an after tax contribution to your super, the Australian Tax Office will pay the co-contribution directly into your super without you applying for this extra amount.
Need more information?
The following links will assist you further to obtain information about each type of contribution and determine if it is a worthwhile step to take.
Salary Sacrificing to Super - https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/salary-sacrificing-super/
After tax contributions to Super - https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-your-super/Personal-super-contributions/
Government co-contribution to Super - https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-your-super/Government-super-contributions/
The importance of seeking information and advice
There are other ways and means to save more in your super, such as splitting contributions between you and your partner spouse.
There are also conditions and limitations to the extra amounts you can make to your super. Concessional and Non-Concessional Contributions Caps are one of these limitations. You should keep within the limit of the CAPS to ensure that any extra amounts you pay into your super does not have a detrimental effect on your current and future circumstances.
Making well-considered decisions and seeking the right advice to your circumstances is particularly important.
This information provides an overview of the differing ways you can save effectively through super. If you would like a PictureWealth adviser to assist you in any way, do not hesitate to contact us.
Any general advice contained above does not take account of your personal objectives, financial situation and needs. You should consider the appropriateness of the advice in light of your own objectives, financial situation and needs before acting on the advice. You should also read the relevant Product Disclosure Statement and TMD before acquiring any product.
