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When it comes to planning for retirement, the best time to start (if you haven’t already), is right now. No matter how far away retirement seems, the earlier you start preparing, the more funds you will have once it’s time to step away from the workforce.
By making additional contributions to super as often and as early as you can, you give your savings time to grow. The additional benefit of putting more funds into super is that it can act as a strategy to minimise tax.
Many of our wealth management and financial planning clients ask us how to boost their super once they reach the age of 50, but a number of these tips can be applied at any age.
Making additional tax-deductible contributions to super
If you’re employed, your employer pays a mandatory 10% of your ordinary time earnings to your superfund (note that this amount will increase to 12% over the coming years). This is known as Superannuation Guarantee (SG). Many people see this as ‘set and forget’ but you do have the option to contribute additional funds to your superfund (provided eligibility requirements are met), with the bonus of getting a tax deduction.
The benefit of making additional voluntary personal contributions is that they may be tax-deductible, subject to the annual concessional contributions cap of $27,500 (this cap applies to both employer SG contributions and voluntary personal contributions).
Note – if you have not utilised your $27,500 cap in prior years, you may be eligible to contribute more than $27,500, subject to eligibility requirements. Carry forward unused concessional contributions | Australian Taxation Office (ato.gov.au). Contributions made under the concessional contributions cap are taxed at a rate of 15% inside your superfund. If your marginal rate of tax is greater than 15% you will end up with a tax benefit overall. There are a couple of ways to make additional contributions to your superfund.
- Salary Sacrifice – request your employer to divert some of your wages to your superfund as salary sacrificed super contributions.
- Voluntary personal contributions – make your own contributions directly to your superfund. Contact your superfund to find out how to do this. If you would like these contributions to be tax deductible, at year end complete the required form and submit it to your superfund. The superfund will then provide you with a letter of acknowledgment which you are required to have before you lodge your tax return. Always keep in mind that if you are a low income earner, opting to take a tax deduction may not give you the best outcome overall. An experienced wealth advisor could assist with this assessment and implementation.
Even if you can only add a couple of hundred dollars to your superfund at a time, this can add up to a considerable boost in your retirement savings over the years. Remember that the magic of compounding is what allows super to grow.
If you’re self-employed, don’t forget to pay yourself super. It makes sense to get into the habit of doing so as a way to prepare for retirement and minimise tax.
Sell an asset and put the money aside
Planning to sell a large ticket asset like an investment property. You may wish to contribute some of the sale proceeds to super. The non-concessional contributions caps allow you to contribute $110k per year (or $330k if you can access the bring forward rule). The good thing about utilising this cap is that you can dramatically increase your retirement savings. The downside is that you won’t get a tax deduction for contributions made under this cap.
This is one to discuss with your wealth advisor; your advisor will ensure you pass the work test and the bring forward rule to boost retirement savings.
Downsizing
If you are downsizing your main residence prior to 30th of June 2022 and are aged over 65 (this age threshold shifts down to 60 on 1st of July 2022), you can contribute up to $300,000 of the money you make from selling the dwelling you live in (per person) to super. Note that this type of contribution does not attract a tax deduction. Downsizer contributions do not count towards any of the contribution caps – however they will count towards your transfer balance cap. Conditions apply so speak to your advisor to figure out if you qualify for this benefit.
Join forces with your partner
If you and your partner have markedly different incomes, there may be an opportunity for the higher income spouse to make super contributions to the lower income spouse’s superfund, and to receive a tax offset in the process (to a maximum of $540 per year).
Spouse superannuation contributions can be made for spouses whose assessable income plus reportable fringe benefits and reportable super contributions are less than $40,000. If you work with your advisor and tax accountant, you may find a way to use this strategy to better your financial outcomes.
Find lost super and consolidate existing accounts
Your super will work best for you if it is all in the same place.
Do a search to see if you have any super accounts, you have forgotten about. If you have been in the workforce for more than 20 years, this may be the case as employees have not always been able to nominate their preferred super account. As a result, lots of people ended up with their super in more than one place.
If you haven’t already done so, consider rolling all your accounts into one. Your wealth advisor can show you how to do this.
Want personal advice to boost your super prior to retirement? Contact Crest Wealth today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice.
