As a financial adviser, I come across a lot of people who are confused about how much they can contribute to Super and the different ways they can contribute. The good news is, recent changes have made getting money into Super a lot easier.
For most people, Super provides the most compelling vehicle to hold long term investment savings. The substantial tax breaks on contributions, investment earnings and retirement pensions, mean that the odds of you achieving higher after-tax returns on an investment outside Super are low (with the possible exception of the family home), which makes Super an important part of your wealth management strategy.
Contributing to Superannuation
There are essentially two ways to get money into Super:
Pre-tax or ‘Concessional’ Contributions (including employer SG contributions, salary sacrificed amounts and personal contributions): $25,000 per financial year; and
After-tax or ‘Non-Concessional’ Contributions: $100,000 per financial year or $300,000 bringing forward two years’ entitlements.
Firstly, it’s important to note that the Super contribution rules have changed recently. Previously, employed people who earned more than 10% of their income from their employment were unable to make personal contributions to their Super and claim a tax deduction, the way self-employed people can. They were restricted to salary sacrificing regular amounts via their employer or making after-tax contributions. This was restrictive and required planning in advance.
From 1 July last year, this restriction was removed. Employees can now add to their employer’s Super Guarantee contributions by making personal contributions at any time during the financial year from their own funds, direct to their Super account, and claim a tax deduction.
Further, from 1 July, 2018, you can carry forward the unused portion of your concessional contributions cap for up to five years. For instance, if you make concessional contributions of $20,000 a year and in 2022/2023 start a business selling flowers at the farmers market on the weekends, you could make an additional personal contribution of up to $20,000 and claim a tax deduction.
Financial planning for the future
These changes recognise that working Australians often derive their income from multiple sources and that it varies as they go through different stages of life and build their careers. Thus providing much needed flexibility.
Putting a long term financial plan in place to save for your retirement and take advantage of superannuation tax concessions could be one of the most valuable financial decisions you make. As always, seek the advice of a qualified financial planning professional to navigate the technicalities and design a wealth management plan tailored to your personal situation.
Interested in learning more? Click here. To get in touch with your local YBR Adviser contact Campbell Korff, YBR Principal & Wealth Manager on 02 6686 6678.