As a financial adviser, meeting with clients regularly means reviewing and setting financial goals, and the months leading up to 30 June present an excellent opportunity to review your super balance and explore ways to boost your retirement savings.
What I often see is the lack of emphasis on superannuation being used as another vehicle for wealth building. It tends to be ignored and majority of individuals tend to park it aside, assuming it doesn’t need to be thought about until they start heading into their pre-retirement years.
The benefits of superannuation
Superannuation is one of the most effective ways to build wealth for your retirement. Not only does it provide a disciplined savings structure, but it also offers significant tax advantages. Contributions to your super can be made from your pre-tax salary, which can reduce your taxable income and potentially lower your tax bill. Additionally, the earnings on your super investments are taxed at a concessional rate, which is generally lower than your marginal tax rate.
How to boost your retirement savings
Making additional contributions on top of the super guarantee paid by your employer can make a substantial difference to your retirement balance. This is due to the power of compounding interest, where the returns on your investments generate their own returns over time.
Here are a few strategies to consider before 30 June:
Concessional contributions (before tax)
These contributions can be made from your pre-tax salary via a salary-sacrifice arrangement through your employer or by using after-tax money and depositing funds directly into your super account. Apart from increasing your super balance, you may also pay less tax, depending on your current marginal rate. Be sure to check your current year-to-date contributions to ensure you don’t exceed the concessional (before-tax) contributions cap, which is $30,000 from 1 July 2024.
Non-concessional contributions (after tax)
Also known as personal contributions, these are made from your after-tax income. It’s important not to exceed the cap on contributions, which is set at $120,000 from 1 July 2024. Exceeding the concessional contributions cap (before tax) of $30,000 per annum will result in additional contributions being taxed at your marginal tax rate, minus a 15 per cent tax offset. Exceeding the non-concessional contributions cap will see a tax of 47 per cent levied on the excess contributions.
Carry forward (catch-up) concessional contributions
If you’ve had a break from work or haven’t reached the maximum contributions cap for the past five years, this type of super contribution could help boost your balance, especially if you’ve received a lump sum of money, such as a work bonus. These contributions are unused concessional contributions from the previous five financial years and are only available to those whose super accounts are less than $500,000. Given the strict and complex rules around catch-up contributions, it’s important to seek advice before proceeding.
Downsizer contributions
If you are over 55 years, have owned your home for 10 years, and are looking to sell, you may be able to make a larger non-concessional super contribution. This could be as much as $300,000 per person, or $600,000 if you are a couple. However, you must make the contribution to your super within 90 days of receiving the proceeds of the sale of your home.
Spouse contributions
There are two ways to make spouse super contributions:
- Split contributions you have already made to your own super by rolling them over to your spouse’s super, known as a contributions-splitting super benefit.
- Contribute directly to your spouse’s super, treated as their non-concessional contribution, which may entitle you to a tax offset of $540 per year if they earn less than $40,000 per annum.
Again, there are some restrictions and eligibility requirements to be mindful of for this type of contribution.
Investment strategy and holistic financial planning
It’s crucial to be mindful of how your super is invested. Superannuation funds offer a range of investment options, from conservative to high-growth portfolios. Understanding these options and aligning them with your risk tolerance and retirement goals is essential. Moreover, financial planning should be approached from a holistic perspective, considering all aspects of your financial situation. Your superannuation, savings, investments, debts, and insurance are all interrelated and should be managed cohesively to achieve your long-term financial objectives.
Next steps
Superannuation can be a powerful and tax-effective vehicle for building wealth. If you’re unsure about your super strategy, how it is invested, don’t understand how to incorporate it into your financial planning strategy, or if you could benefit from a complete review/overhaul of your financial situation, it’s always a good idea to touch base with a knowledgeable financial adviser.
Our team at Nexia Australia is here to help you navigate the complexities of superannuation and tailor a plan that suits your individual needs.
