5 ways to boost your superannuation
Most of us are likely spend up to two decades or more in retirement. For Australians to live the retirement lifestyle they aspire to, research shows that savings generally last around 5 years. This creates a superannuation shortage of about 12.5 years. To ensure you don’t end up short, here are a few ways to boost your super.
CONSIDER MERGING YOUR SUPERANNUATION FUNDS
If you’ve moved jobs or done casual work over the years, you may have money in several different super funds. By having one account, this means you pay less in account fees, have less paperwork and you don’t have to manage multiple accounts.
There are a few things to consider before merging your superannuation:
- Weigh up the benefits and features of your other super funds against your chosen superannuation account.
- Check the tax implications and see if your tax and preservation components will be impacted. If you require more information, speak to a financial advisor.
- Compare the fees of your funds and check for exit or termination fees.
- Consider your insurance. Check if your chosen super account will give you the appropriate cover to replace any cancellation of insurance cover that will occur by merging your accounts. This can include level and types of cover as well as policy terms. If you have a pre-existing medical condition, consider whether you’ll be eligible for the same level of cover if you cancel your existing insurance policy.
- If you wish to claim a tax deduction for personal contributions made into your other fund, ensure your “notice of intent to claim a deduction for personal contributions” is made and acknowledged by that fund.
MAKE PERSONAL SUPERANNUATION CONTRIBUTIONS
By making personal super contributions and claiming the amount as a tax deduction, you may be able to pay less tax and invest more in super. For instance, the contribution will generally be taxed in the fund at the before-tax rate of up to 15%. This is instead of your marginal tax rate which could be up to 47% including the Medicare Levy. An additional 15% tax applies to before-tax super contributions if your combined income and before-tax contributions exceed $250,000.
This strategy could enable you to save in taxes and as a result, increase your superannuation balance.
To claim the superannuation contribution as a tax deduction, you will need to submit a valid “notice of intent” form. Also, you will need to receive an acknowledgement from the super fund. This is required before you complete your tax return, start a pension, or withdraw or rollover money from the fund you made your personal contribution to. Generally, it isn’t tax-effective to claim a tax deduction for an amount that reduces your taxable income below the threshold at which the 19% marginal tax rate is payable. Thus, you would end up paying more tax on the super contribution than you would save from claiming the deduction.
This is where you elect to contribute a certain amount of your pre-tax salary to be paid into your superannuation by your employer. This is in addition to what your employer pays you under the Superannuation Guarantee. Instead of being taxed at your marginal tax rate, these contributions are generally taxed at the before-tax rate of up to 15%. If you’re a high-income earner, you will be taxed an additional 15% (30% in total). However, this is still lower than your marginal rate of 47%.
Making before tax contributions to your super can be an effective way of building wealth. These contributions include mandatory contributions made by your employer and are capped at $25,000 per year regardless of your age.
MAKE AFTER-TAX SUPERANUATION CONTRIBUTIONS
If you have received an inheritance, a bonus or sold an asset, you may consider making after-tax contributions to your superannuation. If so, there are a few important things to consider. The after-tax contributions cap is $100,000 pa. However, if you bring forward 2 years’ worth of contributions, you can contribute up to $300,000. To be eligible to make these contributions, you must meet certain requirements. You can speak to a financial advisor if you want more information.
Also, if you are a low-income earner and make an after-tax contribution, the government makes a co-contribution of up to $500 which can help eligible people boost their super fund.
TOP UP YOUR SPOUSE’S SUPERANNUATION
If your spouse is working part-time, earning a low income or currently not working (but not retired), you may be able to make a “spouse contribution” to their super. By doing so, both parties can benefit. For example, during the 2017/18 financial year, if your spouse earned less than $40,000 and you made a spouse contribution on their behalf, you would receive a tax offset of up to $540 per year.
We hope you found this article helpful. At the end of the day, everyone’s financial situation is different. So we recommend speaking to one of our financial advisors to ensure the strategy you choose is suitable to your financial situation. You can contact us by clicking on this link.
– 17 February 2021 –
In preparing this article, Praescius Financial Consultants NSW Pty Ltd, Praescius Financial Consultants NT Pty Ltd, Praescius Financial Consultants HB Pty Ltd and Praescius Financial Brisbane Pty Ltd have not considered your personal circumstances, goals or objectives; as such the information, commentary and assertions made within this article may not be suitable to you. Please seek personal financial advice prior to acting on this information, or making a decision regarding the choice of a financial product or strategy. Further information and disclosures can be found in our Financial Services Guide or by contacting us on the phone numbers provided.
Praescius Financial Consultants NSW Pty Ltd, Praescius Financial Consultants NT Pty Ltd, Praescius Financial Consultants HB Pty Ltd and Praescius Financial Brisbane Pty Ltd are authorised representatives of Praescius Financial Holdings Pty Ltd ABN 14 610 960 980 AFSL 486455, 2a/57-59 Oxford Street, Bulimba Qld 4171.
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