Supercharged savings: Understanding your super contribution options (as of 22-23 FY)
*As of the 2022-2023 financial year, these figures are accurate at the time of publication based on the most recent data available.
If you're looking to buff up your super beyond the usual employer contributions, you've stumbled onto some gold info here. Whether you're flying solo or navigating financial waters with your significant other, making smart contributions to your super can really pay off as you sail toward retirement. Let’s dive into the how and why of pumping up your super savings.
Why bother boosting your super?
More money for retirement: It's simple—more money into your super means more cash for when work is a choice, not a necessity.
Cover insurance premiums: By utilising your super to cover insurance, you're essentially shifting the financial burden from your bank account to your super fund. This move not only ensures you're adequately covered but also alleviates the strain on your daily finances as you can choose when to make contributions.
Tax perks: By making contributions, you're tapping into valuable tax deductions, essentially maximising your savings potential while reducing your personal tax bill.
Types of contributions to consider
Salary sacrifice: This is when you and your employer agree to pay a portion of your pre-tax salary into your super. This reduces your taxable income—meaning you pay less tax now while boosting your retirement nest egg. However, there are caps to consider, as the combined total of employer and sacrificed contributions mustn't exceed $27,500 per year.
Personal deductible contributions: For both the self-employed and employees, these contributions are made from after-tax income, but you can claim them as a tax deduction. It's worth noting that there's a cap of $27,500 on the combined total of salary-sacrificed and concessional contributions, which includes both employer contributions and your deductible contributions. Additionally, if you haven't reached your cap in the previous five years, you can utilise make-up contributions and claim the deduction for them.
Personal non-deductible contributions: You can make contributions from your after-tax income without claiming a tax deduction. While there's no immediate tax benefit, these contributions aren’t subject to the 15% contributions tax that applies to concessional contributions. The cap here is up to $110,000 per year, unless your super balance is nearing $1.9 million. Additionally, you could also access the bring forward rule, allowing you to potentially contribute up to $330,000 in one year.
Spouse contributions: If your better half is earning a little or taking a break from work, contributing to their super can be a win-win. You could get a tax offset of up to $540 if your contributions are at least $3,000 and your spouse's income is under $37,000 per year. This scales down and phases out when their income reaches $40,000.
The pros and cons
Salary sacrifice: Lower taxable income and automated savings. The con? Reduced take-home pay, which might squeeze your current budget.
Personal deductible contributions: Flexibility is a pro here—you choose how much and when. The downside is keeping within the caps to avoid extra tax. Now it's important to submit a valid ATO Notice of Intent to Claim form to your super fund as soon as possible after making any personal contributions. To understand how this is done, read more here.
Personal non-deductible contributions: Upsides include boosting your super without affecting your tax situation now. The drawback is less immediate tax relief compared to concessional contributions.
Spouse contributions: Great for boosting your partner’s retirement funds and nabbing a tax offset for yourself. Just watch the income and balance caps to make sure you're eligible for the offset.
Getting it right
Before diving in, make sure you understand the contribution limits and rules (they can change!), and consider chatting with your financial adviser to tailor a strategy that fits your personal situation—whether you're a high-flyer or juggling a budget. After all, the right move today can mean a cushier landing in your golden years.
For more detailed guidance, check out resources from the Australian Taxation Office.
Keep these tips in your toolkit and your future self might just throw you a thank you party. Until then, keep it savvy, keep it smart!