Building a substantial retirement fund takes time, but most employees rely on their employer to do the majority of the work. According to APRA, nearly 70% of superannuation contributions in 2022–23 came from employers.
While your employer’s Super Guarantee (SG) contributions provide some financial security, relying solely on them might not be enough for a comfortable retirement. To enhance your super, you can make additional contributions. Although it can be complex, here’s a simplified guide to the main types of super contributions.
Super Contributions: The Essentials
- Taxation Matters Super contributions revolve around tax. There are two primary types:
- Concessional (before-tax) contributions: These are typically employer contributions or tax-deductible personal contributions.
- Non-concessional (after-tax) contributions: These are personal voluntary contributions made from your after-tax income.
- Annual Contribution Caps Because super accounts offer tax benefits, the government has set annual contribution limits:
- Concessional contributions: Capped at $30,000 for 2024–25, but if your Total Super Balance is below $500,000, you can roll forward unused cap space for up to five years.
- Non-concessional contributions: Capped at $120,000 annually if your Total Super Balance is below $1.9 million on 30 June of the previous financial year. If you’re under 75, you can bring forward up to $360,000 over a three-year period, subject to certain conditions.
Concessional (Before-Tax) Contributions: 5 Main Types
- Super Guarantee (SG) Contributions Employers are legally required to contribute 11.5% of your ordinary earnings into your super account. This will increase to 12% on 1 July 2025.
- Award Contributions Some employment agreements may require additional super contributions, beyond the SG rate, depending on the specific terms.
- Additional Employer Contributions Employers may voluntarily contribute above the SG requirement, typically for employees in large companies or the public sector.
- Salary Sacrifice You can agree to have a portion of your before-tax income directed into your super, lowering your taxable income. If your marginal tax rate is above 15%, this can reduce your overall tax liability. Keep in mind that salary sacrifice contributions are made in addition to your SG contributions.
- Personal Contributions (With Tax Deductions) Since 2017, employees can claim tax deductions for personal contributions, which are treated similarly to salary sacrifice. However, if you’re aged 67 to 74, you must meet a work test to make these contributions and claim the deduction.
Non-Concessional (After-Tax) Contributions: 2 Main Types
- Personal Contributions from Take-Home Pay These contributions come from your after-tax salary, meaning you can’t claim a tax deduction for them. You can make lump sum contributions or regular payments up until age 75.
- Spouse Contributions If your spouse has a low income or is working part-time, you can contribute to their super account and potentially receive a tax offset of up to $540. There are income limits and total super balance conditions to meet in order to qualify.
Other Types of Super Contributions: 3 Main Types
- Downsizer Contributions If you’re aged 55 or older and sell your home, you may contribute up to $300,000 of the sale proceeds to your super without it counting toward your contribution caps. This is available even if your Total Super Balance exceeds $1.9 million.
- Government Co-Contributions If you earn less than $60,400 and make personal after-tax contributions, you may receive up to $500 from the government, depending on your income and the amount you contribute.
- Low-Income Super Tax Offset (LISTO) If you earn $37,000 or less, you may receive a refund of up to $500 of the 15% tax paid on your concessional contributions. This is automatically paid by the ATO into your super account.
By understanding these contribution types and limits, you can make informed decisions to boost your super and work towards a comfortable retirement.
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au