Most Australians will spend up to two decades or more in retirement, but will you be able to afford all the things you’ve thought about doing in retirement, before your savings run out?
By starting now and making even small changes to how you approach your super savings, you can move closer to the retirement you’d like – and hopefully make your savings last longer.
MAKE PERSONAL BEFORE-TAX CONTRIBUTIONS
By making a personal super contribution and claiming the amount as a tax deduction, you may be able to pay less tax and invest more in super.
In most cases, the contribution will generally be taxed in the fund at the concessional rate of up to 15 percent instead of your marginal tax rate, which could be up to 47 percent, including the Medicare Levy.
This strategy could result in a tax saving and enable you to increase your super balance.
To claim the super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form to your fund.
Your financial adviser can assist you with this form, after you have made your pre-June 29 contribution (30 June this year falls on a Saturday).
You will also need to receive an acknowledgement of your contribution from the super fund before you complete your tax return, start a pension or withdraw or rollover money from the fund to which you made your personal contribution.
It’s generally not tax-effective to claim a tax deduction for an amount that reduces your taxable income below the threshold at which the 19 percent marginal tax rate is payable.
This is because you would end up paying more tax on the super contribution than you would save from claiming the deduction.
If you are considering taking advantage of an end of tax-year personal deductible super contribution, check with your financial adviser or tax consultant to calculate the optimal contribution for you.
SALARY SACRIFICING SUPER
You might also be able to reduce your tax and boost your super balance through salary sacrifice, which is an agreement with your employer to contribute a certain amount of your pre-tax salary into your super.
Implementing a salary sacrificing (or salary packaging) super strategy has some great benefits.
Instead of being taxed at your marginal tax rate, these contributions are generally taxed at the concessional rate of up to 15 percent (additional 15 percent tax applies to concessional super contributions if your combined income and concessional contributions exceed $250,000).
For example, if you earn $95,000 a year, you could save up to 24c in every dollar sacrificed.
If you’re a high income earner, you’ll be taxed an extra 15 percent on your before-tax contributions (30 per cent in total); however this is still lower than your marginal tax rate of 47 percent (including the Medicare Levy).
Before tax (or concessional) contributions also include mandatory 9.5 percent super guarantee contributions made by your employer and are capped at $25,000 per year, regardless of your age.
Most employers permit super salary sacrifice, however personal deductible super may be preferable if they restrict your contributions to a particular fund.
MAKE AFTER-TAX SUPER CONTRIBUTIONS
Maybe you’ve received an inheritance, a bonus, or sold an asset?
If you are considering making non-concessional (after-tax) contributions to your super, there are important things to consider.
Bring Forward Rule
The after-tax contributions cap is $100,000 pa, or up to $300,000, if you are eligible to bring forward two years’ worth of contributions.
Government super co-contributions also help eligible people boost their retirement savings.
If you’re a low income earner and you make personal (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.
When you lodge your tax return, the ATO will work out if you’re eligible.
If the super fund has your tax file number (TFN) they’ll pay it to your super account automatically.
The way your co-contribution is calculated depends on the financial year in which you made your personal super contributions.
You can visit the ATO website for specific qualifying income levels and amounts.
You may be able to make after-tax contributions to your super before you turn 65, even if you’re not working.
After 65, you’ll need to meet a ‘work test’ each financial year to be able to make after-tax contributions (you’ll need to have worked 40 hours over a consecutive 30 day period), but you can’t make standard after-tax contributions once you’re 75.
TOP UP YOUR SPOUSE’S SUPER
Is your spouse working part-time, earning a low income or currently not working (but not retired)?
If so, you may both be able to benefit by making a ‘spouse contribution’ to their super account.
In the 2017/18 financial year, if your spouse’s assessable income is less than $40,000 and you make a spouse contribution on their behalf into their super account, you’ll receive a tax offset of up to $540 a year (other eligibility criteria applies).
SEEK PROFESSIONAL ADVICE
Remember the tax and super systems are complex and subject to change, and everyone’s financial situation is different.
So before making any major changes make sure you speak to your tax consultant or call our specialist team on 08 9379 3555 (or email firstname.lastname@example.org ) to determine if these strategies suit your financial situation.
Our office can calculate the maximum amount you are allowed to make, and advise you by email.
[Legislation as at 18 May 2018]