Whenever you hear the expression maximise your contributions to superannuation you probably think ‘I don’t earn enough’ to do this.
Well, as of July 1 2017, the superannuation rules are changing, and it’s going to make it much more achievable.
The concessional contribution cap is coming down from $30,000 to just $25,000 per annum.
Remember that concessional contributions include your salary guarantee contributions (SGC), which is what your employer pays into your super.
So, for someone earning $140,000 per annum, your salary guarantee contributions will already take up over 50 per cent of the allowable concessional contributions.
For those earning over $206,480, the salary guarantee contribution caps out at $19,615.60 which means you’re at almost 80 per cent of the cap.
So when thinking of maximising your contributions, you’re actually only talking about bridging the gap between what your employer is paying for you, and $25,000.
One of the main reasons to make extra contributions into your superannuation fund is the tax savings you’ll make.
All concessional contributions are taxed at a flat rate of 15 per cent, to make matters even more attractive any income made in the future from your superannuation investments is also only taxed at 15 per cent.
When comparing this with the marginal rate of tax you pay on your income, making additional contributions equates to free money and is substantially more appealing.
If you can afford to give up between $100 and $150 a week from your take-home pay now, and can continue to do this for your working life – let’s say approximately 30 more years, you add an estimated $850,000+ to your superannuation balance*.
That is a huge difference over the long term for a reasonably small sacrifice.
*based on contributions of $10,000 per annum. at a continued 15 per cent tax rate, and average annual investment returns of 7 per cent.