Superannuation is an excellent way to save for retirement and ensure you are comfortable in your golden years. However, the scheme is limited as it offers users lots of tax savings, and the government also doesn’t want it to be an avenue for avoiding tax payments.
This means that you must be actively aware of how your account looks and maximise the contributions in various ways. This is whether you want to buy a first home, reduce tax expenditures, or simply save for retirement.
In this guide, we’ll look at several techniques you can use to maximise your super savings.
Make Sacrifices in The Present
The superannuation scheme has conventional and non-concessional payment modes, and both can be used to maximise savings.
In concessional contributions, where payments are made before tax, you can maximise savings with salary sacrifice. This method involves using a portion of your pre-tax salary to save in your super fund.
Salary sacrifice is quite efficient as it allows you to reduce your tax expenditure. For most people, the marginal tax rate ranges from 30% to 45%. However, the savings that go to your super fund are only taxed at 15%, giving you significant savings. Note that the earlier and more you contribute to your super, the more you generate compounding returns.
Take Advantage of the Catch Up & Bring Forward Rule
The super scheme offers payment flexibility to cater to different financial situations. Although there are yearly limits, you have an option of using allocations you didn’t use in past years through the catch-up rule. If you didn’t reach the maximum of $27,500 in a previous year and your balance was less than $500,000 at the end of the financial year, you can make the payments in another financial year (and not affect that year’s limits). This is a great strategy when you receive a bonus or some other financial windfall. It applies for the last five years.
With the Bring-Forward rule, you can make payments for the next three years within a single financial year. This rule comes in handy in situations where you have a large sum of money, such as from selling a property or inheritance. When you “bring forward” the payments, you take advantage of investment earnings with significantly less tax. You’ll also benefit from the interest you earn for paying early.
Spouse Contributions
Living comfortably in retirement also involves your partner. You can contribute to their savings if they’ve taken time off work or earn a lower income. This helps boost their savings and maximise their limit.
But beyond that, it also entitles you to a tax offset. For example, if you contribute a total of $3,000 to a partner who earns less than $37,000, you are entitled to a $540 tax offset.
If your partner earns more than $40,000, you may not be eligible for an offset. However, this still allows you to save more under the government program and benefit later.
Government Co-Contributions
To help boost retirement savings, the government offers some incentives to lower earners. You qualify for some if you earn less than $60,400 in one financial year and have made one or more post-tax contributions to your super. The maximum is $500 for an income of $45,400 or less, where you have contributed at least $1,000. The eligibility criteria are being under 71 years old and holding a permanent visa. Note that the contribution is 50 cents for every dollar on a sliding scale.
If you are eligible, you need to maximise this as it can significantly enhance your retirement savings with minimal effort on your part.
Combine Multiple Accounts
Super accounts attract fees such as administration fees, investment fees, and insurance premiums. If you have multiple, you can end up losing a lot of money to fees. It’s therefore advisable to consolidate them into a single account.
This not only reduces fees but also makes management easier. You can easily monitor everything you contribute and review your performance to find ways you can maximise your super savings even more.