Many of us, as we begin a new fiscal year, are still thinking about 2025. This is especially true when it comes to money. It doesn’t matter if your life has been hectic with work, family or your day-to-day activities. Now is the perfect time to review your financial plans, especially your superannuation. It’s a good idea to review your financial plan at the beginning of each year to ensure you are on track to retire and that you are taking advantage of all opportunities to increase your savings.
Marco Mellado, a superannuation expert at ABC Radio’s on the Money program, shared tips and answered questions from listeners to maximise their retirement savings. His insights will help you improve your financial situation, whether you are new to superannuation or want to optimise your strategy.
What Are Concessional Contributions?
One of the first things Marco tackled was explaining concessional contributions, a term that might sound complicated, but is actually key to boosting your super balance efficiently.
- Employer Contributions: Your employer is required to contribute 12% of your gross salary to your super fund. This is called a concessional contribution because it is taxed at a concessional rate of 15%, which is generally lower than your personal income tax rate.
- Salary Sacrifice: You can voluntarily ask your employer to contribute extra money from your pre-tax salary, which also counts as a concessional contribution and benefits from the same 15% tax rate.
- Personal Contributions with Tax Deduction: You can also make personal contributions from your bank account and claim a tax deduction, treating them as concessional contributions.
The advantage? These contributions help reduce your taxable income and grow your superannuation balance more efficiently. But beware that the total concessional contributions cap is $30,000 per year (some people’s cap may be $27,500), so it’s important to plan contributions carefully.
The Contribution Strategy: Employer, Salary Sacrifice, Then Personal Top-Up
Marco recommends prioritising your contributions in this order:
- Employer contributions (mandatory).
- Salary sacrifice (automated and disciplined).
- Personal contributions to top up if you have leftover cap space.
This strategy helps you stay organised and avoid exceeding contribution caps.
Catch-Up Contributions: Using Past Years’ Caps
If you haven’t maxed out your concessional contributions in previous years, you might be eligible to make catch-up contributions (also called carry-forward concessional contributions). This means you can use unused caps from up to five years before to make larger contributions in a current year, great for years when you have a bonus or windfall.
To check your available catch-up amounts, simply log in to your myGov account and look under the superannuation tab.
Important Paperwork for Personal Contributions
If you want to claim a tax deduction on personal concessional contributions, you need to complete a Notice of Intent form with your super fund. Your fund must acknowledge this before you lodge your tax return; otherwise, you won’t be able to claim the deduction.
Low-Income Earners and Government Co-Contribution
For those earning under $47,488, there’s a government co-contribution scheme: if you put in $1,000 personally (not salary sacrificed) and meet eligibility criteria, the government will top up your super with an additional $500. You don’t need to apply separately; it happens automatically based on your income and contribution.
Downsizer Contributions: Boosting Super After Selling Your Home
If you’re over 55 and selling your main residence, the downsizer contribution lets you contribute up to $300,000 into your super from the sale proceeds without counting toward your contribution caps. This is a fantastic way to boost your retirement savings, especially if you plan to downsize and free up capital.
You only get one chance to make a downsizer contribution, so it’s worth planning when and how to use this opportunity.
Common Questions Answered
- Multiple Super Accounts: Some keep an old account with good insurance active by contributing regularly, while focusing on growth investments in their main super account. This can be a smart strategy to maintain coverage without paying for insurance on your entire balance.
- Timing Contributions: For personal contributions, the tax benefit is the same whether you contribute early or late in the financial year. However, contributing earlier gives your money more time to be invested and potentially grow.
- Selling Investment Property and Super Contributions: Capital gains tax on property sale and contribution limits to super are separate issues. You can contribute any amount up to your caps, regardless of the capital gain you made.
- Small Business Owners: Proceeds from selling a business may be eligible for special tax concessions and can be contributed to super, but it’s complex and professional advice is recommended.
- Bring-Forward Rule: If under 75 and your super balance is under $2 million, you can contribute up to $120,000 per year or bring forward three years’ worth of contributions ($360,000) in one year, but then you can’t make more concessional contributions for two years.
- Unpaid Super: First, check with your employer. If unresolved, the ATO and Superannuation Ombudsman can assist.
- Switching Super Funds: Moving from a self-managed fund to an industry fund involves rolling over your balance and may require professional help to close your SMSF properly.
Wrapping Up
Marco Mellado, an expert in superannuation planning and review, says that the beginning of the year is a great time to plan and review your contributions. There are several strategies to increase your retirement savings and reduce your tax bill. Planning can help you maximise your super. From understanding concessional and catch-up contributions to downsizing contributions, planning will allow you to make the most out of it. Set up a myGov Account if you do not already have one. This will allow you to easily access super and tax data, making it easier to manage your finances.
Remember, superannuation isn’t just about saving; it’s about making smart choices to grow your nest egg and secure your financial future. Whether you’re a seasoned investor or just starting, there’s always a way to get your super working harder for you.
Got questions about your super? Consider speaking with a financial advisor or a superannuation specialist, such as Marco, to tailor strategies to your personal situation.
