As we approach the end of the financial year, you might start thinking about your future retirement savings.
One of the key things to consider is making extra payments into your super. There are various ways you can do this and you might have heard the terms bandied around before, but been confused by what they mean and how they work.
Here is our explainer on the different contributions you can make, excluding you employer’s contributions.
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Salary sacrifice
You can ask your employer to pay part of your pre-tax pay into your super account. This is known as a salary sacrificing.
The payments are called concessional contributions and are taxed at 15 per cent, which for most people is significantly lower than their marginal tax rate.
The benefits of doing this is that it allows you to pay less tax while boosting your retirement savings.
According to the government’s moneysmart website, making extra concessional contributions is tax effective if you earn more than $37,000 per year.
There is a limit to how much money you can salary sacrifice into your superannuation account, with the combined total of your employer and salary sacrificed contributions not allowed to be more than $25,000 per financial year.
As an added bonus, concessional contributions are tax deductible for the self-employed.
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After-tax contributions
You can also make contributions to your super from your after-tax pay.
These payments are called non-concessional contributions because you have already paid tax on the money.
You can make up to $100,000 in non-concessional this financial year. Starting from next year the cap is being increased to $110,000 as a result of indexation.
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Low income super tax offset
If you earn $37,000 or less, you may be eligible for a low income superannuation tax offset (LISTO) of up to $500 per year.
You don’t need to do anything. The ATO will work out your eligibility and pay the money into your super account.
The LISTO is 15 per cent of the concessional (before tax) super contributions you or your employer pays into your super fund.
The maximum payment you can receive for a financial year is $500, and the minimum is $10. If you’re eligible for less than $10, the ATO will round this up to $10.
Government co-contributions
I wrote in detail about this last week, but in a nutshell, if you earn less than $52,697 per year (before tax) and make after-tax super contributions, you may be eligible for a matching contribution from the government, called a co-contribution.
The government will work out how much you are entitled to when you lodge your tax return. If you’re eligible, the government will pay the co-contribution directly to your fund.
Downsizer contributions
If you’ve owned your home for more than 10 years and you sell it, you may be able to contribute up to $300,000 from the sale to your super.
Federal Treasurer Josh Frydenberg announced an important change to the scheme in the 2021 Budget that makes it available to more Australians.
The scheme used to be eligible to those aged 65 or older, but the changes announced in the Federal Budget mean the scheme will be eligible to those aged 60 or older.
You can read more about how the scheme works here.
Spouse contributions
You can split your employer super contributions with your spouse.
When you split your contributions, you transfer or roll over a portion of the contributions you recently made to your super account, to your spouse’s super account.
If your spouse earns a low or no income, you may be able to claim a tax offset if you contribute to their super fund.
Are you contributing extra money into your super account before the end of the financial year?
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