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Smart Super Strategies: Getting Started
Superannuation can be one of the most effective ways to build you retirement nest egg. There is a range of strategies you can consider to boost your super savings.
Consolidate your super
If you’ve had several jobs since you started working, you may have money in more than one super fund. More than one super fund means you could be paying unnecessary fees and insurance premiums on each one. Combining all your super funds into one can make your super easier to track, simpler to manager and ensure your savings are working hard for you.
Keep in mind, certain lost super accounts with balances of less than $2,000 (as well as the balances of members not able to be identified by their fund), have been automatically drawn together by Australian Tax Office (ATO) to reduce your account fees as at 31 December 2012. That limit is proposed to rise to $4,000 from 31 December 2015 and $6,000 from 31 December 2016. In addition, from 1 July 2013, the Government started paying interest linked to the CPI on all lost super accounts reclaimed from the ATO. So your super savings will keep pace with inflation.
Track down your super
One way to find out where your super is located is by checking the statements you have received from each of your previous super funds or by calling your past employers. If you can’t trace your super, it may be classified as ‘lost’. Your super may be considered ‘lost’ if:
- your fund is not able to contact you and no rollovers or contributions have been made in the past year
- you’ve been a member for at least 2 years and no contributions or rollovers have been made in the previous 5 years.
You can check whether any unclaimed or lost super belongs to you by visiting the ATO SuperSeeker website ato.gov.au/super or calling 13 28 65. You’ll need to provide your name, date of birth and tax file number. You might need a handy sum to boost your super!
Do some housekeeping and make sure your super fund has your tax file number (TFN). This will make it easier to find lost super, move you super between accounts and receive super payments from your employer or the government. Once you’ve tracked down all your super, you need to decide which super fund best suits your personal and financial circumstances. Before deciding on a fund, compare the costs and benefits of each.
There are three important things to consider before moving you super:
- Will an exit fee be deducted from your investment?
- Are there any investment and.or taxation implications?
- Will you need to make new insurance arrangements?
Currently, most employees receive super guarantee (SG) contributions from their employer of at least 9.5%¹ of their salary. Adding to these contributions directly from your gross (pre-tax) salary can be an easy and tax-effective way to top up your super. This is called salary sacrifice.
The benefits of salary sacrifice include:
- It’s simple, automatic and consistent
- You do not pay income tax on salary sacrifice contributions to super. Your super contributions are tact at 15% or less, which may represent a significant tac saving, particularly if you are on the highest marginal tax rate at 49% (including the Medicare levy of 2%).²
- By making a salary sacrifice contribution, you can reduce your taxable income.
- The difference in taxation may mean more money is available to invest in super than if your were to receive money as after-tax income and then invest it.
You should check with your employer first to see whether salary sacrifice arrangements are available and that adopting a salary sacrifice strategy will not reduce the amount of super contributions your payer pays on your behalf.
Take advantage of the government co-contribution
To encourage you to save for your retirement, if your total income³ is $34,488 pa or less and you make a $1,000 after-tax contribution to super, the government will contribute up to $500 to your super.
The amount of government co-contribution reduces by 3.33 cents every dollar you earn over $34,488 pa and ceases once your total income reaches $49,488 pa.
When determining eligibility for the government co-contribution, earnings that are salary sacrificed to super and reportable fringe benefits come under the definition of total income. If you fit within the income thresholds outlined above, and satisfy some other conditions, contributing to your super from your after-tax salary before the end of the financial year is a great way to top up your super, and get and extra boost from the government.
Your financial adviser can give you the latest updates and more information on this opportunity.
Split super with your spouse
If you are a member of a couple, you are permitted to transfer your super contributions from the previous financial year over to the super account of your partner. If the receiving spouse is over 55 at the time of the split request, he or she must declare that they are not retired. Splits cannot be done once the receiving spouse turns 65. You can do this every year, once the financial year has ended. Up to 85% of taxable contributions such as employer, salary sacrifice and personal deductible contributions made to super can be transferred.
There are several reasons for considering splitting super with your spouse:
- There are potential tax advantages to withdrawing the money from two super accounts rather than one (between age 55 and 60)
- Transferring contributions from the younger spouse to the older spouse could enable you to access more retirement money earlier
- Transferring money from the older spouse to the younger spouse could enable the older spouse to receive more Age Pension by delaying the date at which their super becomes and assessable asset
- Splitting superannuation monies does not count towards the receiving spouse’s contributions cap4
- Super splitting is not offered by all funds, so you will need to check whether your fund offers this feature.
The benefits of spouse tax offsets
Another potential tax concession is a spouse tax offset. This strategy may be available if you are a taxpayer and a member of a couple that makes contributions to your spouse’s super. To take advantage of this strategy, your spouse will need to be under age 65 or aged 65 to 69 and have satisfied a work test during the financial year. You can open a super account in your spouse’s name and make contributions to that account from your after-tax pay. You can also make these contributions to your spouse’s existing super account.
If your spouse’s assessable income, reportable employer super contributions and reportable fringe benefits are under $10,800 pa, you will receive an 18% tax offset on the first $3,000 you can contribute on their behalf, up to $540 pa. The offset operates on a sliding scale and phases out to zero once their income exceeds $13,800 pa.
A word on contributions caps
When considering any super strategy, it’s important to assess how much you are contributing to super in any one financial year. The government has set annual limits – known as contribution caps.
The annual contributions caps as of 1 July 2014 are:
- $30,000 per financial year (indexed) for pre-tax (concessional) contributions if aged under 49 at 30 June 2014, or $35,000 (non-indexed) if aged 49 or over at 30 June 2014
- $180,000 per financial year for after-tax (non-concessional) contributions or $540,000 over a three-year period if you are under 65 in the financial year you make the contribution.
Ways your adviser can help
It’s important to keep your financial adviser informed about any super contributions you make so they can ensure you don’t exceed these caps. Contributions over these caps are currently taxed at up to a hefty 49%.5 In assessing your contributions you will need to include all employer superannuation guarantee contributions from any employers over the years AND any salary sacrificed amounts.
- The Government will freeze the SG rate at 9.5% until end of financial year 2020/21. After that it will increase gradually each financial year by 0.5% until it reaches 12% on 1 July 2025.
- From 1 July 2012, individuals with income greater than $300,000 pa have the tax on some or all non-excessive concessional contributions increased from 15% to 30%.
- Total income equals assessable income plus reportable fringe benefits plus reportable employer super contributions, less business deduction (other than for work related expenses or personal super contributions).
- The original contribution made in does not count towards the member’s concessional contributions cap.
- Contributions made in excess of your concessional contributions cap from 1 July 2013 are effectively taxed at your marginal tax rate, plus an interest charge. You are also able to withdraw up to 85% of any excess concessional contributions made from 1 July 2013. The Government has also announced proposals to allow people to withdraw any excess non-concessional contributions made from 1 July 2013 and to have any earnings included in your assessable income.
Article courtesy of Count
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