Getting money into super and why!

By Jenny Brown – CEO and Founder

We, frequently get asked why should I put money into super?

The age-old “The rules keep changing with super and I can’t access my super until I meet a condition of release or am 65!” is a familiar line.

Our response is invariably super is simply a very tax-effective way of saving for your retirement and as we know it keeps getting harder to get money into super as it is such an attractive investment vehicle.

Tax on the income earned within 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 $1,600,000 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 that 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 taking any more risk.

The same goes if you invest in an asset (perhaps shares or a property) that say 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 9.5% (SG) and any salary sacrifice or personal deductible contributions that you make.

The total amount that can be made is $25,000 including the SG, this limit is increasing next financial year.

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 current limit for FY21 is $100,000 per person and like concessional contributions, is being increased next financial year.

Thinking of selling your house?

Downsizer contributions are where you can make a contribution of up to $300,000 each into super after selling your home that has been your main residence for at least 10 years and you are over 65.  A great way of boosting super, but contributions must be made into super within 90 days of settlement of your property.  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 $39,837 and make a $1,000 contribution, you’ll get $500 from the government.  The amount the government will make reduces as your income increases until you hit a total income of $54,837.  Your super fund balance must also be under the $1.6mil transfer balance cap.  This is a great strategy if you have a low-income spouse, there are some conditions around this, so make sure you chat to us.

There are also Spouse Contributions where you might direct your contributions to your spouse’s account.

I’m sure you can see why we love super for those saving for their retirement and whilst the rules do change and there are some age limits and work tests that apply to making contributions, at JBS it’s our role to keep up with them so that you can enjoy the benefits of super.

If you want to know more about getting money into super or turning your accumulation balance into an income stream to start living the dream, then please reach out and discuss your situation with the JBS Financial team.