Building your superannuation is for many people, one of the best long-term investments you can make. Superannuation is money that you put aside for your retirement — every dollar you save could make a significant difference.
Superannuation can be used to provide a tax-free income for when you retire. It gives you the opportunity to invest in a range of assets through your superannuation fund and you may also get insurance.
It's important you consider different ways you can build your superannuation savings when your circumstances allow. If you can afford it, making extra contributions is a great way to boost your retirement savings and it may reduce your tax.
The following information is intended to make you aware of some of the options available to build your superannuation savings. With some careful consideration and the right mix of strategies, you could potentially get significantly more money when the time is right.
By taking advantage of the Australian Government's superannuation contribution methods, and harnessing the power of time, you can work towards the retirement you aspire to.
Salary sacrifice is an arrangement you make with your employer to pay some of your future pre-tax income into your superannuation, rather than receiving it as taxed take-home pay. This arrangement can help you increase your superannuation balance while also reducing the amount of income tax payable on your wages.
Once you've transferred your personal contribution into the superannuation environment, investment earnings are taxed at a lower rate than what most people pay on their taxable income, particularly for high income earners. These tax benefits could make a huge difference when you eventually come to withdraw your superannuation savings at retirement.
When it comes to topping up your super, the earlier you start the better, as you have one of the best advantages on your side — time. Even if you are only contributing small, regular amounts to your super through a salary sacrifice arrangement, your investments have more opportunity to grow in the longer term the earlier you start contributing.
It is important you keep in mind that your salary sacrifice contributions are counted towards your concessional contributions cap of $30,000 per year. Other contributions that count towards this $30,000 limit include compulsory contributions paid by your employer, contributions from any other jobs, and notional taxed contributions if you're a member of a defined benefit fund.
As salary sacrifice is a formal agreement between you and your employer, you should check with your Human Resources team to determine whether you are eligible, find out what is included in this agreement and how it works.
If you are a middle-to-low-income earner, you may benefit from a government co-contribution if you add to your super from after-tax money. If you earn less than $60,400 this financial year and you make a personal, after-tax contribution to your super fund, the Government will help boost your super with up to $500.
In conjunction with earning less than $60,400, you must also be aged below 71 at the end of the financial year and have a super balance of less than $1.9 million (on 30 June of the year before the year the contributions are being made) to be eligible for this co-contribution. The maximum co-contribution of $500 is available if you earn less than $43,445 and if you have made an after-tax contribution to yourself of at least $1,000.
As illustrated below, the co-contribution steadily reduces as your income rises until it reaches zero at an annual income of $60,400.
| Your total annual income | Your personal super contribution | Maximum co-contribution amount available |
| $45,400 | $1,000 | $500 |
| $50,000 | $1,000 | $347 |
| $55,000 | $1,000 | $180 |
| $60,400 | $1,000 | $0 |
For more information about this co-contribution and its eligibility criteria, please visit the ATO's website. You may also like to try out the ATO's super co-contribution calculator to help you estimate your co-contribution entitlement and eligibility.
Another scheme you may be able to utilise to build super savings quicker is spouse contributions. If your partner is earning a low income, you may be able to claim a tax offset while also helping to grow their super balance.
Spouse contributions can be made for spouses earning up to $40,000 per year. If your spouse has earnings below $37,000, you can claim the maximum tax offset of $540 when you make an after-tax contribution of $3,000 or more into to their super.
Topping up your super with a personal non-concessional (after-tax) contribution means you could take advantage of tax benefits, as well as help your super grow in the long run.
Unlike salary sacrifice contributions, personal deductible contributions can be made with your take home pay or savings. You can do this regularly or you may wait until closer to the end of the financial year, which could provide greater flexibility and planning options if you have irregular income or expenses and need to review your circumstances before committing to a regular contribution.
The amount you choose for your personal super contribution can be as much or as little as you like, so long as the amount does not exceed your concessional (pre-tax) contributions cap of $30,000 if you wish to claim a tax deduction. Other contributions count towards this $30,000 limit including compulsory contributions paid by your employer, contributions from any other jobs, salary sacrifice contributions, and notional taxed contributions if you're a member of a defined benefit fund. For more information about claiming a deduction for personal contributions and the eligibility criteria, please visit the ATO's website.
If you haven't made the most of your concessional contributions in the last five years, you may be able to carry-forward any unused concessional contributions to build your retirement savings. Unused amounts are available for a maximum of five years and will expire after this. You can check your available concessional contributions cap through myGov.
If you have reached the eligible age, you may be able to contribute proceeds of the sale of your home into your superannuation fund. Some of the eligibility criteria you must satisfy are the home must be in Australia, have been owned by you or your spouse for at least 10 years and the disposal must be exempt or partially exempt from capital gains tax. You must also have not previously made a downsizer contribution to your superannuation from the sale of another home or from the part sale of your home.
If you earn $37,000 or less, you may be eligible for a low-income superannuation tax offset. The Australian Tax Office will work out your eligibility and automatically pay the money into your superannuation account.
You need to be aware contribution limits apply to certain types of contributions. You may wish to consider whether to reduce any voluntary concessional or non-concessional contributions to avoid paying the additional tax. For more information about contribution limits and caps, please visit the ATO's website
Making small changes to your superannuation now has the potential to vastly improve your retirement income. The earlier you begin, the more opportunity you have to take advantage of the different contribution methods available to you.
You should start considering which superannuation contribution methods are most suitable for you and start implementing them today.
No matter your situation, professional help can be invaluable when it comes to planning for your retirement. It can help to identify the opportunities available to you to boost your superannuation savings and execute a plan to help you reach your retirement goals.
Wherever you are on your financial journey, from early career to retirement, we can help you plan for the future and adjust to changes when 'life' happens.
From busy individuals to those with complex business or personal situations, our advisers can help you achieve your financial goals by bridging the gap of where you are today and where you want to be tomorrow. Get in touch today.
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