What You Should Be Aware of When Making Super Contributions
How’s your superannuation balance looking?
Do you know precisely how your super contributions work? Did you know that you can make contributions to your super? Do you know what rules and regulations you need to be aware of when you make those contributions? If those questions have left you with more questions than answers, don’t worry…
Here is a quick guide on making super contributions and what you should be aware of!
What’s the Purpose of Superannuation Contributions?
The primary purpose of making super contributions is simple: it helps you maximise your retirement savings, so you can ensure you meet your financial goals.
Although the contributions you make now may feel small, they accumulate over time with compound interest. By the time you retire, the total amount you have saved extra can significantly impact your retirement lifestyle, providing you with financial freedom in your golden years!
What Do You Need to Be Aware of When Making Superannuation Contributions?
Generally, you’ll be making one of two types of contributions: concessional (before-tax) and non-concessional (after-tax) contributions.
- Concessional Contributions: are normally contributed through a salary sacrifice. This is where you can ask your employer to pay part of your before-tax income into your super.
This type of contribution strategy can be quite tax-effective as it is taxed at 15%, which for most, is lower than the marginal tax rate.
However, keep in mind that there is a cap to the amount you can make, which is currently $27,500. If you exceed the cap, you may run into taxes, and it is your responsibility to monitor your caps.
- Non-concessional Contributions: can include, your bonus, dividend payments, inheritance, or any available spare cash on hand that you want to contribute to your super balance. These contributions are money that come from your after-tax pay.
Like the concessional contributions, there is also a cap here, which is currently $110,000 per financial year.
The Bring-Forward Rule for Non-concessional Contributions:
You can carry that amount up to three years forward, by taking advantage of the bring-forward rule sitting at $330,000.
This means you can make extra non-concessional contributions without having to pay extra tax. However, to utilise the bring-forward rule, it’s important to check if you are eligible. Again, it’s up to you to monitor your cap to ensure you do not incur unnecessary taxes.
Can I Catch Up on Concessional Contributions I Missed or Did Not Make?
Yes, you can catch up on concessional contributions that you missed or did not make, if you’re eligible. To be eligible, your total super balance prior to the 30th of June must be below $500,000.
The catch-up rule works by adding up your unused concessional contributions and carrying them forward for up to five year before they expire. That cap is $25,000 initially for the first year, and any unused amount will be added to the next unused cap so on and so forth for five years. As such, you can catch up to your contributions, but only to a certain extent.
Ready to Make Super Contributions with a Reliable Financial Planner?
If you haven’t been making super contributions or are planning to do so but need some guidance, don’t be afraid to reach out to a financial advisor.
They can assist you in understanding what super contributions are all about and what you can expect when making voluntary contributions. This will ensure that you can meet your retirement goals, meaning you can sit back, relax, and know that you have the financial means to continue living comfortably once you’ve finished your hard-working years.
Blue Financial Ballarat is one of the oldest financial planning firms in Ballarat, offering financial services to make planning for life easier.