Super has two key advantages over other types of investments:
Tax advantages
Super is one of the most tax advantaged investment vehicles, as income earned in your super fund is taxed at a maximum rate of 15%. Whereas the income you earn from other (non-super) investments is taxed at your marginal tax rate (up to 45%, including the Medicare Levy).
Compounding interest
As access to your super is restricted until later in life, it gains the powerful effect of compounding interest. Your contributions and overall nest egg will keep earning interest over time, which will then be reinvested.
If you want to start building your superannuation, here’s a few options to consider:
1. Salary sacrifice
Employers are required by law to contribute 10.5% of your salary into your super fund (called Super Guarantee), however you may be able to contribute a greater amount of your salary to build up your nest egg faster. When you enter into a salary sacrifice arrangement, you forgo some of your take-home pay (which would be taxed at your marginal tax rate) and divert it into super where it is taxed at a maximum of 15%. Salary sacrificing can also reduce your overall taxable income, pushing you into a lower income tax bracket.
2. Salary splitting
If your spouse has minimal super, splitting your own super contributions with them can help build up their own account. More importantly, it may assist you to increase the amount of tax-free super you can receive as a couple once you retire. Upon retirement, each individual can withdraw a portion of his or her super tax-free (depending on their age and actual super components).
3. Make non-concessional contributions
Contributions which are made from your after-tax salary are non-concessional. This money has already been taxed, so it does not incur the 15% contributions tax that deductible contributions (such as salary sacrifice) incur. If you make a non-concessional contribution, you may be eligible to receive a co-contribution from the Government.
4. Self Managed Funds
A self managed fund can give you greater control of your superannuation. Some benefits include:
- Ability to pool funds with up to 6 other individuals
- Control and freedom over asset choices
- Capacity to purchase a large asset
- Capacity to borrow, leveraging wealth over time
- Flexibility and greater control over estate planning issues
- Business owners can use to build wealth for the business and retirement
- Gets you actively involved in your retirement
Superannuation planning can be complex. Putting a strategy in place now ensures that you maximise your retirement income and gives you the opportunity to enjoy the retirement life that you deserve.
Any Questions?
If you want more information or want to take advantage of the options available please do not hesitate to contact us on 9886 0800 or via email.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.