Everyone (hopefully) knows that super is the best place for long term savings.
The tax benefits are utopian, with all earnings and capital gains tax free once you draw a pension, and only 15% tax before then.
In fact, if your superfund receives franking credits from dividend income, the franking credits are refunded by the ATO to your account where they exceed the tax due. (Note some of the “cheaper” funds don’t do this – they keep the franking credits for themselves to offset their costs). Make sure you are not with one of those by looking at your annual statement for a tax credit.
To stop us putting everything into super, caps and limits apply to the amount you can put in. The rules appear complicated, but for most people there are two types of contributions you can make:
- Concessional contributions – these are made from your gross (pre-tax) income and include your employer 9.5% SGC, salary sacrifice and personal deductible contributions. These are taxed at 15% on entering the fund and you are capped at $25,000 per person per year.
- Non Concessional contributions – these are made from your after tax income. They are not taxed on entering the fund and you are capped at $100,000 per person per year. Further restrictions apply for those with super balances over $1m. Non Concessional contributions are best done via Bpay from your personal account.
As unfortunately the pension fairy does not exist, you need to be doing both of these. To avoid a massive drop in lifestyle on retirement, your total super contributions need to be around 20% of your gross income every year. So if your employer is popping in 9.5%, and you top that up with salary sacrifice, you probably still need to be putting in an additional 5% to 10% of your gross each year as a non-concessional contribution.
The only way to make this happen, because it is much more fun to spend money now rather than save, is to automate it. So today’s action is to set up a regular Bpay contribution amount and let it take care of itself.
If you need help working out how much to contribute, please get in touch.
Lindsay 0413 952 180