Maximising Your Retirement: The Importance of Getting Money into Super
Many people are sceptical about putting their money into superannuation, and one of the most common reasons is the fear of not being able to access it until they meet a condition of release or reach the age of 65. However, super is one of the most tax-effective ways to save for retirement. Despite the changing rules around super, it remains an attractive investment vehicle that can help secure your financial future. In this blog, we’ll explore the benefits of putting your money into super and why it’s a smart investment choice.
Tax on the income earned in Super
A huge benefit of saving within super is the concessionally taxed nature.
Earnings are taxed at a maximum of 15%.
Capital gains are taxed at 15%, or if you hold the asset for longer than 12 months, you get a 1/3 exemption, so the effective tax rate becomes 10%.
The best thing about super is that when you’re over 60 and decide to retire from employed work with the view to live off your super, you can turn up to $1,900,000 each into a pension and receive an income stream that is 100% tax-free. Plus, any earnings within the pension are also tax-free.
Let’s compare the same portfolio, both inside super and outside super. Say we invest $1,000,000 and earn 5% income, that’s $50,000 if you hold the investment inside super, you’ll pay zero tax, versus having the same investment outside in your own name and having to pay marginal tax rates on it, a saving each year of around $7,700 (assuming no other taxable income, in which case the savings could be greater). This means that your money is working so much harder for you without you taking any more risks.
The same goes if you invest in an asset (perhaps shares or a property) that doubles over a 5-year period when you go to sell it. If you held that asset inside your super fund, you’ll pay no tax, if you held it in your own name, then you’ll pay tax on 50% of the gain, which could add up!
So, if you’re keen to get money into super, here are a couple of ways to do it:
Concessional Contributions
Concessional contributions are “before tax” contributions paid into your super and include the employer 11% (SG) (11.5% from 1 July 2024) and any salary sacrifice or personal deductible contributions that you make.
The total amount that can be made is $27,500, including the SG, this limit is increasing next financial year to $30,000.
Contributions are taxed at 15% on the way into your super fund, rather than you receiving the money and paying your normal marginal tax rate, therefore, if you are earning over $18,200, then you may benefit from the tax saving.
Non-Concessional Contribution Caps
Non-Concessional Contributions are those where you have already paid tax, and so when they are made into your super fund, then they are not taxed on the way in.
The concessional cap will increase to $30,000 from 1 July 2024 from $27,500 this Financial Year. It also means the non-concessional contributions cap for 2024/25 will increase to $120,000 from $110,000.
Thinking of selling your house?
Downsizer contributions are where you are allowed to contribute up to $300,000 each into super after selling your home that has been your main residence for at least 10 years. You and/or your partner must be 55 years old or older from 1 January 2023. A great way of boosting super, but contributions must be made into super within 90 days of settlement of your property. This is a once-off opportunity that should be considered.
Want some free money from the government?
Government Co-Contributions where if you are a low or middle-income earner and make a personal (after-tax) contribution to your super fund, the government contributes up to a maximum amount of $500. This strategy is good if you earn less than $58,445 and make a $1,000 contribution, you’ll get $500 from the government. As long as you earn 10% of your income from employment and is greater than $43,445, the amount the government will contribute reduces as your income increases until you hit a total income of $58,445. Your super fund balance must also be under the $1.9mil transfer balance cap. This is a great strategy if you have a low-income earning spouse, there are some conditions around this, so make sure you chat with us.
There are also Spouse Contributions where you might direct your contributions to your spouse’s account.
the advantages of superannuation are numerous and can have a significant impact on your retirement. Despite the changing rules and regulations surrounding it, we believe that super is still one of the most effective ways to invest for your retirement.
At JBS, we are here to help you navigate these complexities and ensure that you can enjoy the benefits of super. If you would like to learn more about how to get money into your super account or how to turn your accumulation balance into an income stream, please reach out to us here. We would be more than happy to assist you with your retirement planning.
By: Jenny Brown – CEO and Financial Adviser