One of the important aspects to remember about your superannuation is that it’s never too late to make a difference to your balance by making even minimal extra contributions.
Concessional contributions, or ‘before-tax’ contributions, are often the most tax-effective means by which to give your super a boost. The most common means of making a concessional contribution is by salary sacrifice, where your employer diverts a portion of your salary into your super before-tax. Thanks to the power of compound interest, making contributions of as little as $50 or $100 each paycheck can result in a healthy boost to your super returns after a few years. Not only are you speeding up your rate of saving, but you may even be able to drop into a lower income tax bracket. Once you calculate the benefits, it’s likely you won't even miss the money from your take home salary.
While it’s important not to exceed the concessional contribution caps, $30,000 per year for those under 50 and $35,000 for those over, the more you can afford to pay into your super now, the greater the benefit you’ll reap when the time comes to consider taking an income in retirement. The government is proposing changes to these concessional limits so that from 1 July 2017, the most you can contribute into super from your before-tax pay at the 15% tax rate will be $25,000 a year, regardless of age. With this in mind, you may want to consider maximising your concessional contributions this financial year.
What happens if you’ve reached your concessional contribution cap? Should you still consider making non-concessional ‘after-tax’ contributions? Depending on your marginal tax rate, it may well be worth it. Your super fund may tax earnings on contributions at a lower rate than earnings from investments outside of super, so as well as growing your super balance, you may also be able to improve your tax situation. It’s worthwhile getting advice specific to your situation.
There are also limits on how much you can contribute to super after-tax, known as non-concessional contributions caps. From the 3 May 2016, the government has proposed a lifetime limit of $500,000, with contributions dating back to 1 July 2007 counted towards this limit. If you think you may exceed this cap, it is worth seeking advice before committing your money, as there may be tax implications.
By how much extra contributions can boost your superannuation balance depends on how much you contribute and how long your money is invested for, and of course, the returns achieved by your superannuation fund. To give you an indication of how additional contributions can grow your super balance, why not give AustralianSuper’s Contributions Adviser calculator a go? All you need to have to hand are a few simple details to see how a few extra dollars today, can make a big difference to your financial position at retirement.
This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, the Trustee of AustralianSuper ABN 65 714 394 898. The views expressed are those of YourLifeChoices and not necessarily the views of AustralianSuper. The article contains general information and you should consider if it is right for you.
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