This article has been provided by Cornerstone Wealth for Christian Super Members.
You may be surprised to find out that only one in 8 employed super fund members make contributions to their super above the mandatory employer-paid 9.5% superannuation guarantee. If you’ve never thought about making additional contributions to your super, here are some things to consider.
Why make additional contributions to your super?
The first question you need to ask is “what is the benefit?” There are a range of benefits of contributing to super, including:
- Reduced income tax
- Increased social security payments
- Access to other government payments
- Compound interest
- Estate planning benefits
However additional contributions don’t benefit everyone and not everyone is eligible. Read on to find out if you might be eligible to take advantage of some of the benefits of making additional contributions to your super.
Salary sacrifice and personal deductible contributions
Making salary sacrifice contributions and/or personal deductible contributions is one of the most beneficial strategies Cornerstone Wealth consistently implements for our clients, so let’s start here.
Salary sacrifice into superannuation is an arrangement between you and your employer where your employer agrees to pay some of your pre-tax salary as an additional concessional contribution to your super account. The benefit is generated by paying 15% contributions tax rather than your marginal tax rate (21%, 34.5%, 39% or 47% including 2% Medicare Levy) depending on your taxable income.
For example, Ben is 60 years old, earns $70,000 taxable income and salary sacrifices $10,000. He will save nearly $2,000 in tax (i.e. 32.5% + 2% Medicare Levy – 15%) x $10,000 = $1,950
There is no benefit in salary sacrificing to super if you pay no tax (generally if your taxable income is less than $20,500).
Making personal deductible contributions is another method of achieving the same result as salary sacrificing. You simply use funds in your bank account rather than directly from your employer and submit a form to claim the deduction.
You need to ensure you do not exceed your annual concessional contribution limit which is $25,000 for the 2018/19 financial year (your regular employer contributions are included in this cap).
Non concessional contributions
In addition to your $25,000 concessional contribution limit you also have a $100,000 non concessional contribution limit.
You don’t pay the 15% contributions tax on these contributions. But they can provide the following benefits:
- $3,000 spouse contribution – put $3,000 into your low income (less than $37,000) spouse’s super and receive a $540 tax rebate (tax back).
- $1,000 government co-contribution – if you have an income of less than $52,697 (2018/19) and you could receive up to $500 in a co-contribution from the government into your super account.
- If you have sold your home, that you have owned for 10 years, and you are over 65 years of age you may be able to contribute up to $300,000 to your super (each person i.e. $600,000 for a couple) within 90 days of the sale. This can provide access to the tax free pension phase of superannuation.
One of the major upsides of additional contributions to super is the benefit of compounding i.e. earning interest on interest over a period of time. The longer the period the greater the benefit, so the earlier you start making additional contributions the better the outcome.
If you don’t have the capacity to forego income or spare funds to put into super you could access funds using a transition to retirement strategy. You need to have reached your preservation age which is currently 57 years (see here for more information).
Are you eligible?
Not everyone is eligible to make contributions so check the table below to see if you are. Also ensure you don’t exceed your annual contribution limits ($25,000 concessions and $100,000 non concessional) and total super balance limits ($1.6m).
|Age||Employer Super Guarantee||Employer Voluntary||Member||Spouse|
|Under 65||At any time||At any time||At any time||At any time|
|65 – 69||At any time||Work test required||Work test required1||Work test required|
|70 – 74||At any time||Work test required||Work test required1||Not permitted|
|75 and over||At any time||Not permitted1||Not permitted2||Not permitted|
Work test – gainfully employed at least 40 hours in any 30 consecutive day period in the financial year in which the contribution is made.
1 The age-based contribution restrictions do not apply to downsizer contributions.
2 A contribution may be accepted up to 28 days after the month in which the member turns 75.
Need more information?
Disclaimer: The content of this article includes advice that is general in nature and does not consider your personal situation. Christian Super encourages all people considering their options in retirement planning to seek out qualified professionals who can provide specific personal advice.