Should I contribute to Super? (Updated 2024FY)
It’s a question that is often asked and my honest answer - It depends on your situation.
Superannuation is a great environment to save money for the long term, but it is heavily restricted when it comes to accessing it.
On the flip side, the sooner you start building your retirement savings, the better off you are likely to be in the long run, due to the effects of compounding interest.
Ultimately, striking the right balance for YOUR needs is what is important.
Other than simply investing in super for the sake of one’s retirement, there are also additional benefits that can be achieved when superannuation contributions are used to your advantage.
Let’s take a look at the most common types of super contributions:
Concessional contributions
Annually each individual has a cap of $27,500 that they can contribute to super as concessional or tax deductible contributions.
Concessional contributions attract a 15% contributions tax, meaning that for every $1,000 you contribute, $150 is paid to the ATO, on your behalf, and $850 is invested for you, into your superannuation plan.
The following contribution types are included under this cap.
Personal Taxable Contributions
Personal Taxable Contributions are contributions that you can make personally and which are eligible to be claimed as a personal tax deduction in the year in which they are made.
To be eligible to claim a tax deduction, your contribution must be received by the fund, prior to the end of the financial year (June 30), in the year in which you wish to claim the deduction. For example, if you wish to claim a deduction for the 2024 FY, your contribution/s must be received between July 1, 2023 and June 30, 2024. In addition, prior to lodging your tax return for that year, you must also lodge a ‘notice of intent to claim a tax deduction’ with your super provider that received your contribution. These instructions allow your super plan to deduct the 15% contributions tax from your super plan on your behalf.
These contributions can be made as a one off lump sum contribution, or you can arrange for payments to be made on a regular basis during the year.
Salary Sacrifice Contributions
Salary Sacrifice Contributions are contributions to your super plan, in which your employer directs, on your behalf, using pre-tax money. Tax of 15% is also deducted from these contributions within your super plan.
Because these contributions are directed by your employer, from pre-tax income, you do not need to lodge a notice of intent to claim a tax deduction and your annual income summary from your employer will identify these contributions, as ‘reportable contributions’ for tax purposes.
These contributions are usually made on a regular basis, in line with your employers superannuation payment obligations, which could be each pay cycle or quarterly.
By making additional personal taxable contributions or salary sacrifice contributions, individuals are able to minimise their personal taxable income positions and ultimately the level of personal taxes they are required to pay.
These types of strategies are beneficial to individuals who’s marginal tax rates are greater than 15%.
Superannuation Guarantee Contributions
Superannuation Guarantee Contributions or SG contributions are contributions that every employee is entitled to receive. These are contributions paid, on your behalf, by your employer. The Government mandated annual contribution amount is currently 10.5% of your annual salary; however, some employers will pay above this rate.
Unfortunately SG contributions don’t provide any additional benefits for investors, other than having someone else help to build your retirement nest egg for you.
As taxable contributions, 15% tax is also deducted from these contributions, within the super fund, and paid to the ATO on your behalf.
Carry Forward Concessional Contributions
Did you know that if you have a superannuation balance below $500,000 you may also be able to increase your eligible concessional contribution room?
If you have not maximised your concessional contributions over the past five (5) years, it is likely you will have eligible carry forward room available to you, in which you can utilise to claim a greater tax deduction.
Non Concessional Contributions
Annually each individual has a cap of $110,000 that they can contribute to super as non concessional or tax free contributions.
A non concessional contribution is a contribution you make to your superannuation plan in which you cannot claim a tax deduction for, and in which the 15% contributions tax is not applied. This means for every $1,000 you contribute, $1,000 is invested on your behalf in the super environment.
Eligible income earners with income of less than $58,445 p.a. are also eligible to receive the Government co-contribution of up to $500, where they contribute up to $1,000 in non concessional contributions. Note, to maximise this, income under $43,455 is required with a pro-rata payment provided for those earning between $43,456 and $58,445.
Again, these contributions can be made as a one off lump sum contribution, or you can arrange for payments to be made on a regular basis throughout the year.
Want to discuss your situation and further explore the benefits of superannuation contributions? Please feel free to contact our office at 03 5443 7220 .
The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.