Superannuation is an essential part of Australia's retirement savings system, offering significant tax benefits that can help you grow your wealth over time. Whether you’re new to the workforce or approaching retirement, understanding how super works can make a big difference in your financial future. In this guide, we’ll break down the key aspects of superannuation.
Why Superannuation Matters
One of the most compelling reasons to contribute to your super is the favorable tax treatment it offers. Earnings within super are taxed at just 15% during the accumulation phase, and once you reach retirement, your super’s earnings become tax-free.
Concessional Contributions: A Smart Way to Save
Concessional contributions are a great way to boost your super balance while reducing your taxable income. These contributions are tax-deductible, and the current annual cap is $30,000 (which includes employer superannuation guarantee payments).
Non-Concessional Contributions: Supercharge Your Super
Non-concessional contributions, which are not tax-deductible, allow you to get more money into the superannuation environment. These contributions are capped at $120,000 per year, but with the ‘bring forward rule,’ you can contribute up to $360,000 in a single year.
Investing in Super: Manage Your Risk
As your superannuation balance grows, it’s crucial to ensure that your investments are aligned with your risk tolerance. Taking on too much risk, especially as you near retirement, could leave you vulnerable to market downturns.
Balancing your asset allocation to reflect your stage in life is key to preserving your wealth and ensuring your super works for you in the long term.
Accessing Your Super: What You Need to Know
Once you’ve met certain conditions of release, such as reaching age 65 or retiring after age 60, you can start drawing from your superannuation. Payments made from your super after age 60 are tax-free, and you can choose to withdraw lump sums or set up a regular retirement income stream.
When commencing a retirement income stream, you’ll need to withdraw a minimum pension amount annually. This amount is based on your age and pension account balance.
Downsizer Contributions: Boost Your Super Later in Life
If you’re aged 55 or older and are downsizing by selling your home, you may be eligible to make a downsizer contribution of up to $300,000 into your super. This can provide a significant boost to your retirement savings, allowing you to maximize the tax benefits of super even later in life. Importantly, this contribution does not contribute to the non-concessional contribution annual cap.
Transition to Retirement Income Stream (TRIS)
For those between the ages of 60 and 65 who haven’t yet retired but still want to access their super, a Transition to Retirement Income Stream (TRIS) could be the answer. With a TRIS, you can start drawing a tax-free pension from your super account, even if you’re still working. You’ll be required to withdraw a minimum of 4% and a maximum of 10% of your super balance each financial year, giving you greater flexibility to manage your income as you prepare for retirement.
Other Contribution Types
There are additional ways to contribute to your super beyond concessional and non-concessional contributions. For example, if you sell an active asset from your small business, you may be eligible for Capital Gains Tax (CGT) Exempt Contributions under the Small Business CGT Concessions. This allows you to contribute large amounts to your super without being subject to the annual contribution limits.
Conclusion
Superannuation is one of the most effective ways to save for retirement thanks to its concessional tax treatment. By understanding how super works and taking advantage of concessional and non-concessional contributions, you can significantly boost your retirement savings over time. Whether you’re just starting out or preparing to retire, strategic superannuation planning can help you achieve financial security and peace of mind.
If you’d like to explore more about how superannuation fits into your financial plan, contact one of our experienced advisors today. Alternative, download our superannuation guide for a summary of the important superannuation features.
Click here to download your Superannuation guide.
