Four things you need to know about boosting your super

For many people, super is one of the best ways to grow your wealth, as it provides tax benefits to help you save for retirement. With life expectancies increasing and the prospect of more time spent in retirement, a healthy super balance will help you enjoy a full and vibrant life when you stop working.

There are two main types of super contributions: concessional (before-tax) and non-concessional (after-tax). Both are subject to caps which limit the amount you can contribute each financial year, and the type of contribution that is right for you will depend on your individual situation.

Concessional (before-tax) contributions are the types of contributions that Australians would be most familiar with.

These include contributions made by your employer on your behalf, such as super guarantee (SG) contributions, where employers contribute 10.5% (increasing to 12%) of your salary to your superannuation account each year. For most people these contributions are taxed at 15% in your super fund, rather than your marginal tax rate.

Using salary sacrifice to boost your super

Arranging with your employer to forgo some of your pre-tax salary in return for extra super contributions can be an easy and tax-effective way to top up your super over and above the superannuation guarantee. This is called salary sacrifice.

While giving up some of your income now in return for extra contributions that you may not see until retirement may not sound attractive, it's important to realise salary sacrificing may not reduce your take home pay by as much as you would think.

For example, if someone earning between $45,000 and $120,000 salary sacrificed $100 of pre-tax salary a fortnight ($2,600 a year), it would only reduce their take home (after tax) pay by $66.50 per fortnight ($1,729 a year). That's just $4.75 a day.

It's important to remember these salary sacrifice contributions count towards your concessional contribution cap of $27,500 along with your superannuation guarantee contributions.

However, if you haven't used all of the basic cap in previous financial years, you may be able to 'carry forward' the unused amounts from 2018-19 for up to five years and make a larger concessional contribution.

To be eligible, your total superannuation balance (the combined value of all your super and pension accounts) at the prior June 30 must be under $500,000. Also, not all employers offer salary sacrifice arrangements, so check to see if they are available.

Personal contributions

If you choose to make a personal contribution to super from your savings or after-tax money (income that has already been taxed, such as your take-home pay), you can may also claim a tax deduction for all or part of your contribution.

Making personal tax-deductible contributions may prove timely if you have made a considerable capital gain from the sale of a property or shares, as your deductible contribution to your super fund may help to offset the tax payable on your assessable capital gain.

Not only could you boost your super balance for retirement, it could help you manage tax.

Personal tax-deductible contributions can also be a flexible way of maximising your concessional contributions near the end of a financial year. The same concessional contributions cap applies, which is $27,500 each year. Remember, you may be able to contribute more by carrying forward unused amounts from the previous five years.

Benefits of non-concessional contributions

Non-concessional contributions are simply personal contributions that you don't claim a tax deduction for. Making non-concessional contributions is another great way to boost your super.

Firstly, the contribution cap is significantly higher at $110,000 per financial year. You may also be able to make additional contributions by utilising the 'bring forward rule', which may allow you to contribute up to $330,000 over a three-year period.

From July 1, 2022, the rules changed to allow you to make non-concessional contributions under the bring forward rule if you are under age 75 at some time during the financial year (previously you had to be under age 67). This is a great opportunity that allows people aged between 67 and 75 to top up their retirement savings.

However, the cap you have available under the bring forward rule will reduce once your total super balance at the prior to June 30 is $1.48 million or more, and your non-concessional cap reduces to nil once your total super balance is $1.7 million or more.

Age limits

While superannuation guarantee contributions can be made at any age, personal contributions can generally only be made up until 28 days after the end of the month you turn 75.

If you are over 67 and you intend to claim a tax deduction for your personal contribution, you need to meet a work test or work test exemption. To meet the work test, you need to be gainfully employed for at least 40 hours over 30 consecutive days at some time in the financial year you make the contribution.

If you do not meet the work test, you may still be eligible to claim a tax deduction if you meet the work test exemption. This exemption applies if you met the work test in the previous year, have not used the work test previously and had a total super balance of less than $300,000 at the prior to June 30.

While you generally can't make personal contributions once you are over 75, there is one special exemption which can allow you to make a special type of contribution called a 'downsizer contribution' when you sell your home.

How to make the right choice

You may want to get the advice of a financial adviser before making decisions about additional super contributions.

Advisers can recommend the right amount of concessional or non-concessional contributions, discuss access to benefits such as the government co-contribution, and determine whether making a personal deductible or salary sacrifice contribution will be tax effective in your situation.

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