With the financial year end approaching, now is the perfect time to consider making additional contributions to your superannuation. Despite rising living costs affecting households nationwide, superannuation remains one area of personal finance you can improve without significant immediate financial strain.
Making strategic investment decisions and finding ways to contribute more to your super now can substantially boost your retirement savings over the long term. Thanks to compound interest, these extra contributions can make a meaningful difference to your future lifestyle options.
Australians Super Knowledge Gap
A September 2024 ASIC Moneysmart roundtable revealed that nearly half (48%) of millennials surveyed were unsure how much they could contribute to their super. This knowledge gap extends beyond millennials. Vanguard’s 2024 “How Australia Retires” research found that almost half (49%) of working-age Australians have never made personal (additional) contributions to their super, and more than a quarter (27%) have no plans to make future personal contributions. To assist you in better understanding your options to boost your future through extra super contributions, here are a few contributions you could consider.
Understanding the Superannuation Framework
Under the current Superannuation Legislation, Australian employers must contribute 11.5% of employees’ ordinary time earnings to superannuation (which will increase to 12% on 1 July 2025). Superannuation contributions up to the concessional limit of $30,000 per person each financial year are taxed at just 15%1 . If your employer’s contributions don’t reach this $30,000 limit, you can make up the difference yourself while enjoying the same low tax rate.
Concessional (Before-Tax) Contributions
You can make these contributions either:
• Through salary sacrifice arrangements with your employer
• By depositing after-tax money directly into your super account and then claiming a tax deduction in your next tax return
These contributions are taxed at 15% within your super fund. However, if your income and concessional contributions exceed $250,000 in 2024/25, you may have to pay an additional 15% tax on some or all of your concessional contributions. There is an annual cap for concessional contributions, which is currently $30,000. However, depending on your contribution history over the previous five years, you may also be eligible to make additional “carry-forward” contributions. You may be able to contribute more than $30,000 this financial year using unused concessional contributions caps from the previous five financial years, if eligible. NOTE: If you are aged between 67 and 75 at the time of making a concessional contribution, you must meet the work test requirement for the relevant income year or one of the work test exemptions.
Non-Concessional (After-Tax) Contributions
These are personal contributions you make from after-tax money and cannot claim as a tax deduction. The main advantage is accumulating more of your money inside the super system, where: • Investment earnings are taxed at up to 15% • After age 60, if you’ve stopped work and access your super as a pension, your investment earnings and payments are completely tax-free The current non-concessional contribution limit is $120,000 per financial year. However, using the “three-year bring-forward rule,” you may be able to contribute up to $360,000 in a single financial year. If you make a non-concessional contribution to superannuation, you may qualify for the government co-contribution of up to $500. The amount of the co-contribution will depend on your income and the amount of the contribution.
Contributions Splitting
Couples can split up to 85% of their annual concessional contributions with an eligible spouse, including employer contributions, additional salary sacrifice and personal super contributions. This splitting must occur after the end of the financial year in which the contributions were made. Super splitting can happen at any age, but your spouse must be either: • Under their preservation age (the age at which they can access super), or • Between their preservation age and 65, and not retired Before pursuing this strategy, check whether your super fund allows contribution splitting.
Spouse Contributions
If you make an after-tax contribution into your spouse’s superannuation, you may qualify for a tax offset of up to $540. The amount contributed will count towards your spouse’s nonconcessional contributions cap. To be able to access the tax offset of $540, the amount of the contribution must be at least $3,000 and the spouse’s income cannot exceed $37,000 per annum. The tax offset will reduce if the spouse’s income is between $37,000 and $40,000 per annum.
Get Professional Advice
Super and retirement planning can be complex. It’s crucial to fully understand contribution types and limits, as exceeding the applicable caps can result in significant tax penalties. Agebased limits on super contributions also apply.
Call us for personalised advice if you’re unsure about your super options.