Superannuation

Superannuation strategies

In the accumulation phase there are a range of superannuation strategies that may be used. These depend on whether you are an employee or self employed.

Salary sacrifice

The most common strategy is to salary sacrifice. This involves putting extra money into superannuation each pay day, so you are sacrificing some of your take home pay that you may spend for saving it for your future retirement. This is generally tax effective because this extra money you put into superannuation is taxed at 15% rather than your current margin tax rate.

You may salary sacrifice up to the concessional cap including any mandatory employer concessional contribution. It is important not to break the concessional cap as there are heavy penalties, so always make sure that the total of all concessional contributions whether they are through salary sacrifice and from your employers compulsory superannuation contribution combined do not breach the total concessional cap.

Key Tip: Before entering into a salary sacrifice arrangement, you should consider all of the associated actual and opportunity costs. Most importantly will your life style be significantly impacted by the loss of take home income. Can you still pay your bills?

Partner co-contribution

This strategy involves one partner contributing to the other partner’s superannuation. This frequently involves a situation where one partner (wife/husband looking after children or caring for parents) is not working or is working less than full time. It means that that the non-working partner can continue to build a superannuation nest egg while the working partner that is contribution some of their salary is adopting a tax effective strategy.

Key Tip: If your partner is on a low income, you may be able to claim an income tax offset of up to $540 for contributions you made on their behalf.

Government co-contribution

The Federal government makes contribution to low income earners that worth 15% of the concessional (before tax) contribution you or your employer make. It a great strategy for all workers, particularly for students as it means that effectively the Federal Government is paying for all fees and aiding in the growth of the superannuation fund.

This strategy is dependent on the Federal Government maintaining the scheme.

Key Tip: You need to make your contribution by 30 June to the your super co-contribution at the current year’s rates

Non-concessional contributions

This strategy involves making after tax (non-concessional contributions) to your superannuation fund. As with concessional contributions there is a maximum amount that you can non-concessionally contribute. There are a range of rules that should be closely read, so as to avoid inadvertent breaches of the law that may result in significant penalties and fines.

Key Tip: Timing of your contribution is important. Contribution is counted towards the caps in the year in which they are received and credited by your superannuation fund. Therefore, it is important to regularly monitor the contributions made if you don’t want to inadvertently exceed a cap. There are significant penalties for breaching the cap.

Single fund approach

With the advent of compulsory superannuation many people find that they end up with 2-5 superannuation accounts with different funds. If this is you, then you then as a general rule you should consolidate it into a single fund. There are a number of reasons for consolidating including the benefits of compounding accrue to larger amounts more than smaller balances. You may find that each fund contains life and TPD insurance meaning that you could be over-insured, and if so you are paying away too much in premiums.

Key Tip: Select fund based on their fees and return performances over an extended period, not on the recent performance ranking.

SMSF

Whether you are an employee or self employed you can have a SMSF. An SMSF allows you to take control of your own finances and financial future. If you have more than $250,000 the SMSF strategy is something that should be investigated.

Key Tip: Your fund has to be a ‘complying fund’ that follows the laws and rules for SMSFs, in order to be taxed at a concessional rate of 15% on your contribution.

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