The benefits of super contributions
If you want to retire one day, and not rely solely on the largesse of the Australian government, you will need some of your own money. Superannuation is designed to be this savings vehicle, with a very low tax rate.
Getting money into super early takes advantage of one of the most powerful forces in nature, compound interest. It’s the secret to getting rich, slow. Putting in $50 a week now will mean much more than putting in $500 per week in a decade.
No wonder Einstein called compound interest the 8th wonder of the world!
If you can afford it, there are a number of ways to put money into super before the end of the financial year on June 30th:
- If your taxable income is less than $36,814, the government will pay you to put money into super.
That’s right, make a $1,000 after tax contribution, and the government will put $500 into your super. No strings!
- If you earn more than $37,000 you’re in the 32% tax bracket and making pre-tax contributions will save you tax because the super tax rate on these contributions is only 15%.
No longer can you only do this via your employer as salary sacrifice, you can now opt to make a personal pre-tax contribution, up to the annual cap, which includes all employer contributions, of $25,000.
Make sure you complete what’s called an s290 form and lodge with your superfund to have them allocate this correctly, and tell your accountant to have your taxable income reduced.
- A spouse can pay up to $3,000 into the account of a spouse earning less than $37,000, and receive a tax offset of $540.
A spouse contribution helps even up super balances.
Before you make any super contributions be very sure you will not need that money before age 60. That’s the trade-off for these awesome tax concessions and gifts. If in doubt, chat to your adviser.
Barney Ellis is from miPlan Financial Services who support GPC Squad. You’ll also find him at the Geelong Cross Country Club Sunday morning races.Barney advises on life insurance, financial planning including investment, loans, budgeting, superannuation.
Read his other GPC blog on Financial Friction here.
(This is general advice only and does not factor in your particular personal circumstances.)