Everyone wants a comfortable retirement, but to achieve this, you need to start planning as soon as possible.
In Australia, superannuation is the safety net to support retirees. However, how much you have in your super is not set. There are ways to contribute extra to your superannuation above the regular additions made by your employer.
Explore some of the options for super contributions you can make in preparation for retirement without suffering negative tax implications.
When to start boosting your super before retirement
It’s never too early to start adding to your superannuation, but for some people, it may be easier said than done.
The ATO recommends starting to maximise your super 10 to 15 years before you intend to retire. This gives you enough time to make a significant difference but does not come so early in your career that your living standards will be impacted.
You can try the MoneySmart retirement planner as a starting point to strategically increase your super funds.
Here are some of the ways that you can contribute to your super:
Concessional and non-concessional
The ATO says there are two kinds of superannuation contributions: concessional and non-concessional.
Concessional contributions are:
- Contributions to your super fund that have not yet been taxed.
These contributions include:
- Your employer's regular contributions
- Contributions that you are allowed to claim
While non-concessional contributions are:
- Contributions that have already been taxed.
Non-concessional contributions include:
- After-tax contributions made by your employer
- Most contributions made by a spouse
Before you start making voluntary superannuation contributions, speak to an advisor who can help you understand the tax implications.
One of the easiest and most common ways to add to your superannuation is to salary sacrifice.
To salary sacrifice, all you have to do is talk to your employer and ask for an extra slice of your pay to be added to your superannuation fund every pay cycle.
The amount that you add to your super contributions is also not counted as assessable income, so it is tax-free to contribute to your super this way (up to a certain amount each year).
You are also free to contribute personal funds to your superannuation anytime in the leadup to your retirement.
You can pay any amount below the concession cap into your super from your after-tax income with no taxation repercussions.
If you exceed the cap of $27,500, there may be tax implications.
If you have money in a foreign superannuation fund, you should be eligible to have it transferred to your Australian fund.
Money transferred from a foreign fund is considered income, and you may be expected to pay income tax on any money you transfer to your locally-based funds.
The ATO says there are two ways of contributing to your spouse's super:
You may be able to split contributions you have already made to your own super by rolling them over to your spouse's super – known as a contributions-splitting super benefit.
You can make a super contribution directly to your spouse's super, treated as their non-concessional contribution, which may entitle you to a tax offset.
Splitting your superannuation with your spouse will depend on your fund. If your fund allows you to do this, you need to apply to them directly.
Contribution splitting can be a little complicated, so it's best to refer to the ATO website or contact a professional for more information.
If you are making a donation directly to your spouse’s super, you may be able to claim a tax offset of up to $540 a year, as long as their income is below $40,000.
A recently introduced option for Aussies over 55 is the downsizer contribution.
If you sell your home with the intention of downsizing, you can add up to $300,000 of the proceeds from the sale of your home to your superannuation.
This contribution is considered non-concessional but doesn’t count as a personal contribution, so it won’t bring any other contributions you make beyond the cap and it shouldn’t have tax implications.
Contributing to superannuation before retirement
The sooner you add to your super, the longer the money has to grow. Speak to a financial planner to put together a strategy that will give you more money when you step away from full time work.
Don’t forget that downsizing your home can also free up capital to fund your retirement. If you’re thinking about selling, contact an experienced local real estate agent for advice in this area.
IMPORTANT: It is worthwhile talking to a licensed financial planner to understand the implications based on your individual circumstances and needs.