The power of extra salary-sacrificed contributions
25 September 2017 | Retirement and superannuation
As the first quarter of 2017-18 draws to a close, it's worth checking whether you are making the most of your ability to make regular salary-sacrificed super contributions.
If your salary-sacrificing contributions are lagging, think about stepping up your contributions for the remaining nine months of the financial year.
Your ability to step up your contributions – never overlooking the annual contributions cap – will much depend on your personal circumstances. There are, of course, two broad categories of super contributions – concessional (before-tax) contributions and non-concessional (after-tax) contributions, each with different annual contribution caps*.
If you are thinking of stepping-up your salary-sacrificed contributions, it is critical to keep in mind that the $25,000 annual concessional cap for 2017-18 applies to the total of the various types of concessional contributions, which include salary-sacrificed amounts.
Concessional contributions comprise compulsory (SG), salary-sacrificed and personally-deductible contributions (often made by the self-employed and investors).
Key changes affecting concessional contributions from 2017-18 include the lowering of the contributions cap to $25,000 for all members eligible to receive contributions. (The cap is down from a standard $30,000 or $35,000 if aged over 49).
And from 2017-18, the ability for individuals to claim tax deductions for personal contributions is broader and less rigid.
You may be eligible to claim deductions for your personal contributions if you are employed and earning a salary, self-employed, an investor or beneficiary of a trust.
The previous rule that you must not earn more than 10 per cent of your income from employment to claim deductions for personal contributions has been removed from 2017-18.
While these changes ease the rules on claiming deductions for super contributions, some members will need to keep a closer watch to ensure they don't overshoot the concessional contributions cap.
Concessional contributions that exceed the cap are effectively taxed at an individual's marginal tax rate (plus Medicare) and subject to an excess contributions charge for late tax.
It takes years to build up enough savings for a satisfactory standard of living in retirement. A smart strategy is to contribute as much as you can whenever you can – given your other commitments.
Are your salary-sacrificed contributions lagging?
* The annual contribution caps for 2017-18 are: $25,000 for concessional contributions; a standard $100,000 for non-concessional contributions (or $300,000 over three years).
Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.
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Robin Bowerman, Principal, Market Strategy & Communications at Vanguard Australia, shares investment and personal finance insights gained from over two decades in the finance industry as writer, commentator and editor.