When it comes to managing your money, one smart move stands out: making the most of your superannuation.
Super has two key advantages over other types of investments: tax and compounding interest. 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%, plus the Medicare Levy).
As access to your super is restricted until later in life, it also gains the powerful effect of compounding interest. Your contributions and overall nest egg will keep earning interest over time, which will then be reinvested.
This blog breaks down 4 practical approaches that can help you make your super work harder.
Let’s dive in and explore these strategies, equipping you to make savvy choices and take control of your financial future.
1. Boost your savings with salary sacrifice
Employers are required to contribute 11% 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. Share the benefits with 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 is not taxed when the money is received by your super fund. From 1 July 2022, the non-concessional contributions cap is $110,000. Members under 75 years of age may be able to make non-concessional contributions of up to 3 times the annual non-concessional contributions cap in a single year. Note that there are additional thresholds to consider for all ages before confirming eligibility.
If eligible, when you make contributions greater than the annual cap, you automatically gain access to future year caps. This is known as the ‘bring-forward’ option.
4. Take charge with a Self Managed Super Fund (SMSF)
Ever thought of having more control over your super? A SMSF might be just the thing. With an SMSF, you can:
- Pool funds with up to 6 other individuals, give you more investment power
- Choose where to invest your money
- Purchase large assets
- Capacity to borrow, leveraging wealth over time
- Flexibility and greater control over estate planning issues
- Business owners can grow their retirement and business wealth together
Navigating superannuation can be complex, but with these strategies you’re better equipped to make some informed decisions and be on your way to a brighter financial future.
More Information
If you want to learn more or take action on these options, feel free to get in touch with us on 03 9886 0800 or drop us an email. We’re here to help you make the most of your super and secure the retirement you deserve.
Any questions?
If you have any questions please contact us on 03 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 2023. Please do not reproduce without the expressed written consent of the author.