INSIGHT

5 Ways to boost your super

Will you have enough super to retire comfortably? It’s a question you should think about right now, whether you’re hoping to scale back on paid work soon or still planning to work for a few more decades.

If you’re still working, you have the benefit of being able to boost your super balance. And the sooner you start putting more into super the bigger the impact on your retirement nest egg.

Here are five tax-effective strategies which may help you make sure your super fund will be enough to fund the retirement lifestyle you’re hoping for.

1. Consolidate Your Super

If you’ve changed jobs or ever worked casually, you could have more than one super account – and you may not even know it.

The ATO estimates there were around 6 million 'lost' super accounts in Australia at the end of 2015, worth more than $16 billion1 And if you have more than one account, you could be losing thousands of dollars in unnecessary fees.

So if you have lost super or if you're managing more than one account, it makes sense to consolidate because it's your money going to waste. Those fees you save will make a sizeable difference to your retirement savings over many years.

Before you close a super fund, check if you’ll lose any valuable benefits, such as low-cost life insurance or a defined benefit pension.

2. Sacrifice from your salary

Salary sacrifice is an arrangement between you and your employer, where you agree to reallocate part of your before-tax salary to your super. If you’re on middle to high income, you might be able to afford to take home slightly less pay in return for a bigger super balance – and the bonus is you’ll pay less income tax.

That’s because the amount you ‘sacrifice’ is taxed at 15%, rather than your marginal tax rate. And unlike other forms of salary sacrifice (like a novated car lease) contributions to super don’t attract Fringe Benefits Tax (FBT).

There are, of course, limits. If you earn more than $300,000 per year you will pay an additional 15% contributions tax (Division 293 tax)2. And if you contribute more to super than the concessional contribution cap, you’ll pay more tax. Right now, if you’re under 50 you can contribute up to $30,000 each year or $35,000 if you’re over 50. From July 1 2017 this may be lowered to $25,000.

Bear in mind these limits also include the amount your employer pays to your fund – currently 9.5% of your salary.

3. Make voluntary contributions

You can also make extra payments into your super fund from your after-tax pay. Because you’ve already paid income tax on this amount, it won’t be taxed within your super fund.

This can be a good use of a lump sum windfall – like an inheritance. However there are also caps on these non-concessional contributions – currently $180,000.00 per year or $540,000 over a three year period if you're under age 65. The 2016 Federal Budget proposed introducing a lifetime cap of $500,000 on all after tax non-concessional contributions3 made since 1 July 2007.

SMSFs can be a great way to pool your super assets with a partner or extended family as your fund can have up to four members.

4. Top up your spouse’s super

Another good way to boost your family's super savings is to make after-tax contributions to your spouse's super fund, especially if they are not working or on a low income.

If your de facto or married spouse earns less than $13,800 per year and you top up their super, you could be eligible for a tax offset of up to $540 per year4. It all helps.

5. Look into a Self-Managed Super Fund

Setting up a Self-Managed Super Fund (SMSF) allows you to take a more direct hand in growing your wealth.

SMSFs can be a great way to pool your super assets with a partner or extended family as your fund can have up to four members.

You can access a wider range of investment options than traditional retail or industry super funds – including direct shares, high yielding cash accounts, corporate debt, direct property and unlisted assets. SMSFs are also popular because they are allowed to borrow to invest in property, both residential and commercial.

However, you need to be prepared to take responsibility for administering your fund and complying with all requirements. Make sure you understand all the potential costs involved before making that decision.

There are many ways to grow your retirement nest egg, and even the smallest contribution can make a significant difference to your retirement savings if you start early.

With different rules and limits at play, it pays to get expert financial advice about your long-term investments in super.

Important Information:

1. https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Super-statistics/Super-accounts-data/Super-accounts-data-overview/?page=1#Lost_and_ATO_held_super

2. https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-paying-tax/Division-293-tax---information-for-individuals/

3. http://www.smh.com.au/money/super-and-funds/how-the-super-changes-affect-you-20160504-gom83h.html

4. https://www.ato.gov.au/individuals/income-and-deductions/offsets-and-rebates/super-related-tax-offsets/

Important Information:

Contribution limits, eligibility criteria and calculations correct for the 2015/16 financial year. For further information, please visit https://www.ato.gov.au

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