In Australia, our superannuation funds are one of our most valuable possessions – even though most of us don’t realise this is true until we are on the verge of retirement.
But the truth is, your super is working hard for you throughout your career. The compulsory Super Guarantee that most of us receive from our employers can add up quickly over time.
But one question we get asked frequently as financial planners is,
“Will my super be enough for my retirement?”
Unfortunately, the answer is quite often no.
So many Australians don’t have enough superannuation to fund their entire retirement which is exactly where voluntary super contributions can help.
How Do Voluntary Super Contributions Work?
You can choose to add more money to your superannuation fund on top of the Super Guarantee.
Small amounts add up over time, and some voluntary contributions can reduce the amount of tax you pay.
Plus, aside from the potential tax benefits, extra contributions can help to grow your super over time. Because your super fund invests your super for you, you will be able to benefit from the result of compound interest.
This means, the earlier you start, the more time your super has to grow into a reliable nest egg for your dream retirement years.
What are the 2 Types of Voluntary Super Contributions?
There are two kinds of voluntary super contributions that you should be aware of. Knowing more about them will help you choose which one works best for you:
1. Concessional Contributions
One type of voluntary super contribution is concessional contributions.
Concessional contributions are also known as pre-tax contributions or the activity of salary sacrificing.
This involves asking your employer to pay part of your pre-tax pay into your super account. These are typically taxed at a rate of 15%, which for most people is lower than the marginal tax rate meaning you will pay less tax.
Keep in mind, there is a super contribution cap limiting how much you can contribute each financial year. The combined total of your employer and salary sacrificed contributions must not be more than $27,500 per financial year.
Make up for Lost Time with Catch-up Contributions:
With this strategy you are able to exceed the annual concessional contribution cap if you haven’t used the full concessional contributions cap in an earlier financial year (from 1 July 2018 only).
You may have had a year where under certain circumstances you had interrupted income. You may have taken time off work to study or care for children. Whatever the case may be, it can be worthwhile looking into if you are eligible to make a catch-up contribution to your super fund.
Unused cap amounts can be used as catch-up contributions for up to five years before they expire.
2. Non-Concessional Contributions
You can also choose to make super contributions from your after-tax pay.
If you think your super balance is looking a little low, these types of contributions can be an effective way to top up your super balance.
Instead of the $27,500 cap for pre-tax super contributions, you can contribute up to $110,000 per financial year in after-tax super contributions.
You can add to your super by going straight to your super fund or through a financial advisor. A financial advisor can also help you to determine an appropriate superannuation strategy for your situation that can help you minimise tax and secure your dream retirement.
Boost Your Super Fund Further with Bring-forward Contributions:
The ‘bring-forward’ rule may be useful for you if you have reached your non-concessional contribution cap within the financial year.
If you meet the eligibility criteria, you could potentially contribute up to three times the annual cap of $110,000, enabling you to boost your super balance by $330,000 within the same financial year.
This can be beneficial if you have gained a large inheritance and want to invest the money tax effectively.
If the bring-forward contribution strategy appeals to you, it’s important to check your current super balance first. You may have exceeded the balance of $1.48 million in the previous financial year and in that case, the strategy may not be available to you.
Superannuation Advice on the Gold Coast
If you are looking for a financial advisor in the Gold Coast to help you understand voluntary super contributions better, Cambio Group can help. Our experienced financial advisors are here to help you every step of the day, making sure that you’ll only get the best deal and services when it comes to your financial goals.
Get in touch with us to book your complimentary financial planning consultation.
Disclaimer: The information (including taxation) in this website does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.
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