Are you a young professional or a new investor looking to secure a more comfortable retirement? Making additional contributions to your superannuation (super) fund can be an effective strategy for boosting your retirement savings. Beyond the standard employer contributions, there are several ways to increase your super balance, including making personal contributions, spouse contributions, and tapping into government co-contributions.
In this guide, we’ll explore these options and provide practical tips to help you enhance your super and build a solid financial future.
Understanding Super Contributions
Before diving into additional contributions, it’s crucial to understand the basics of superannuation in Australia. Super is a way of saving for your retirement, with contributions typically made by your employer under the Superannuation Guarantee. However, relying solely on employer contributions may not be enough to achieve your retirement goals. That’s where additional contributions come into play.
Personal Super Contributions
What Are They?
Personal super contributions refer to extra funds that you voluntarily contribute to your super account. These contributions can be made from your pre-tax income (salary sacrifice) or post-tax income.
Benefits
- Tax Advantages: Salary-sacrificed contributions are generally taxed at 15%, which may be lower than your marginal tax rate, potentially saving you money. However, if your income and super contributions exceed $250,000, an additional Division 293 tax of 15% may apply, reducing some of the tax advantages.
- Increased Savings: Regular additional contributions can significantly boost your super balance over time due to compound interest.
How to Get Started
1. Assess Your Budget: Determine how much you can comfortably contribute to your super without compromising your current financial situation.
2. Set Up Salary Sacrifice: Arrange with your employer to direct a portion of your pre-tax income to your super fund.
3. Make After-Tax Contributions: If you prefer to contribute from your after-tax income, transfer funds directly to your super account.
Spouse Contributions
What Are They?
Spouse contributions involve making contributions to your spouse’s super account. This strategy can be particularly beneficial if one partner has a lower income or is not working.
Benefits
- Tax Offset: Contributing to your spouse’s super can make you eligible for a tax offset of up to $540, provided specific criteria are met.
- Balancing Super Accounts: Helps balance super savings between partners, potentially maximising retirement benefits.
How to Contribute
1. Check Eligibility: Ensure your spouse is eligible to receive contributions, usually by being under 75 years old.
2. Determine Contribution Amount: Decide how much you can contribute to your spouse’s super without affecting your finances.
3. Transfer Funds: Make contributions directly to your spouse’s super account.
Example
Imagine a scenario where Alex, a high-income earner, contributes $3,000 to his spouse Jamie’s super account. Jamie’s income is less than $37,000, making Alex eligible for a tax offset. Not only does this help balance their super funds, but it also reduces Alex’s overall tax liability.
Government Co-Contributions
What Are They?
Government co-contributions are additional contributions made by the Australian government to your super when you make personal after-tax contributions and meet specific income criteria.
Benefits
- Boost Your Super: The government may contribute up to $500 to your super, helping to accelerate your savings.
- Encourages Savings: This incentive encourages individuals to take charge of their retirement savings early on.
How to Qualify
1. Check Eligibility: Ensure your total income is below the upper-income threshold (e.g., $56,112 for the 2020/21 financial year).
2. Make After-Tax Contributions: Contribute up to $1,000 from your after-tax income to your super fund.
3. Submit Tax Return: Lodge your income tax return to trigger the government co-contribution.
Example
Consider Emily, a new graduate earning $40,000 annually, who decides to contribute $1,000 to her super fund. By doing so, Emily qualifies for a government co-contribution of $500, effectively boosting her super balance for the year.
Tips for Success
- Review Contribution Limits: Be mindful of annual contribution caps to avoid excess contributions tax.
- Regularly Reassess: Periodically review your super strategy to ensure it aligns with your evolving financial goals.
- Consult a Financial Adviser: Seek professional advice to tailor a strategy that suits your individual circumstances.
By making additional super contributions, whether through personal contributions, spouse contributions, or government co-contributions, you can significantly enhance your retirement savings. Start today and take control of your financial future. Explore your options, set realistic goals, and watch your super grow.
Are you ready to make the most of your super? Begin by evaluating your financial situation and exploring the contribution strategies that work best for you. Your future self will thank you.
If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.