Types of Super Contributions
“Should I contribute into super” – Ever wondered this?
End of financial year is fast approaching – and that means it’s time to think about super contributions. Are you currently making any extra super contributions? Or do you have another strategy in place to boost your retirement savings?
Despite what I may think, I understand that super contributions are perhaps not the most exciting topic for most people. But I think it’s important to understand how they work and the potential benefits they may provide you long term.
Here’s a few types of contributions you might have heard about and wondered how they work:
The Government co-contribution: If you are on a low income and make a super contribution, the government contributes up to a certain amount into your super fund too.
Salary sacrifice: You tell your employer to take some of your (pre-tax) pay and put it into your super. You increase your retirement savings and may even save some tax too.
Tax deductible super contribution: You take some of your cash, put it into your super fund, and then claim a tax deduction on it at tax time. Note there’s certain criteria to be met for the tax deduction to be available!
Spouse contribution: If you have a low income spouse, and make a contribution into their super fund, you may be eligible for a tax offset at tax time.
This is a very simplistic overview of the different contribution types and strategies available. It’s very important to note that these may or may not be relevant to your circumstances. If you’re considering making extra super contributions, you really should think about chatting with a financial adviser to understand it more. Here’s just a few important points (of many) that need to be considered:
Once money goes into super you can’t access it until your retirement, or if certain other criteria (condition of release) is met. There are limits as to how much you can put into super. Depending on your marginal tax rate and taxable income, certain contribution strategies may not suit you.
To be eligible for certain benefits around super contributions your taxable income needs to be below certain levels. There may be tax of 15% deducted from your super contribution. There may be fees associated with super contributions and super in general, whether that be at the end of your bank or your super fund.
In summary, it’s important to consider your long term retirement savings strategy, and whether super contributions should form part of this. If you are considering implementing a super contribution strategy I do suggest speaking with a financial adviser so that they can assist you to set it up in a way that works for you. Making contributions into super is one thing. Having a tailored, ongoing retirement savings strategy that is tax effective is quite another.
Alison Kaigan – Your Canberra Financial Adviser