Contributing to your Retail Superannuation Fund
As you progress through your working life, saving for retirement takes an increasing priority if you are seeking to continue a comfortable life when you retire from work.
Aside from the Age Pension provided by the government, Australian Superannuation provides a solid platform for you to bolster your retirement savings. There are two ways in which you can grow your Superannuation fund and these are through investment growth and also the amount you contribute/save to it.
In this article, we will cover the main things you need to know when contributing to your Superannuation Fund.
Superannuation contributions are classed as either a ‘Concessional’ or a ‘Non-Concessional’ contribution. The difference between these two types of contribution is purely down to the tax treatment of each.
Types of Super Contributions’
- Concessional Contributions – These are classed as ‘Deductible Contributions’ because tax is deducted from the fund before the contribution is applied to your Super Fund. The Superannuation provider will deduct tax at the ‘concessional’ rate of 15% and pay the Australian Tax Office (ATO) on your behalf. If you earn over $250,000 then you may be required to pay an additional 15% tax under the ‘Division 293’ tax rule. The maximum ‘concessional’ contribution you can make, each financial year, is $27,500. From July 2018, a new rule was introduced that allows individuals who have a super balance of less than $500,000, to carry forward any unused allowance for up to 5 years.
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The following contribution types are classed as concessional contributions and treated, as per the above:
- Non-mandated employer contributions – These are contributions made by your employer that are above the Superannuation Guarantee (SG).
- Salary Sacrifice – These are contributions made on your behalf by your employer from your pre-tax income.
- Personal contributions – These include contributions made by you as the member. These also include transfers from overseas pension schemes.
- Spouse contributions – This is a contribution made to your fund on your behalf from your Spouse.
- Government co-contributions – If you are a low or middle earner and wish to make a personal contribution to your Superannuation fund, the government may also contribute up to a maximum of $500.
- Non-Concessional Contributions – These are contributions where a tax deduction is not claimed. Examples of these can be transfers from an overseas pension scheme, spouse contributions, government co-contributions and some personal contributions where a tax deduction has not been claimed. Currently, the maximum non-concessional contribution that is permitted without penalty is $110,000. If you are under the age of 75, it is also possible to ‘bring forward’ a further two years of the allowance, providing you with a total of $330,000. Any excess contributions above the limit will be taxed at 45%.If your total superannuation balance is greater than $1.7 million at the end of 30 June of the previous financial year, any non-concessional contributions will be treated as excess non-concessional contributions. If your balance is greater than $1.48, million, it will affect the bring forward amount that is available to you.
The following contribution types are classed as non-concessional contributions and treated, as per the above:
- Overseas Pension Transfers – An example would be transfers from a UK pension scheme.
- Downsizer contributions – These are contributions that can be made from the proceeds of selling your home, you may contribute up to a maximum of $300,000 per financial year. These are not classed as non-concessional contributions, hence they will not count towards your contribution caps.
The Superannuation Guarantee
Under Australian law, it is a requirement for employers to contribute to your Superannuation fund if, you are over the age of 18 and earn a minimum of $450 per month. This is known as the Superannuation Guarantee (SG). If you are under the age of 18, then you must work for a minimum of 30 hours per week to be eligible for Superannuation Guarantee contributions. The rate of the Superannuation Guarantee currently stands at 11% of your annual salary. For more information on the Superannuation Guarantee (SG), check out our article here.
This article does not contain personal or financial advice. It is provided for general information only and does not take into account your personal objectives, financial situation or needs. IVCM is not authorized to provide you with any personal or financial advice.
If you require financial any advice then you must make sure that you obtain advice from a suitably qualified financial adviser.