What is a Super Contribution?
When making a contribution to super, it can be a little confusing understanding what types there are and how they work.
A super contribution refers to a payment made into a superannuation fund on behalf of a member. This amount is allocated to that members “super” balance. These are only from amounts that originate outside of the fund and do not include income generated inside of the fund.
Contributions can generally be broken down into two main categories. “Concessional” or taxable and “Non-Concessional” or tax free contributions, we will look into these further.
These contributions are also known as “before-tax contributions” because they are made from your pre-tax income. The key feature of concessional contributions is that they are generally taxed at a lower rate compared to your regular income. This allows us to potentially prepare a strategy to maximise your super while minimising taxation, these are made up of mainly the following:
Employer Contributions: These are the compulsory contributions made by your employer into your super fund, known as the “Superannuation Guarantee.” The current rate is 11% (on its transition to 12% by 2026) of your ordinary time earnings, and it is mandatory for most employees.
Salary Sacrifice Contributions: This type of contribution involves voluntarily redirecting a portion of your pre-tax salary into your super fund. By doing so, you reduce your taxable income, leading to potential tax benefits.
Personal Deductible Contributions: If you’re self-employed or want to look at some strategic contribution options, you can still make concessional contributions by claiming a tax deduction for the contributions you make from your after-tax income. This is subject to certain conditions and requires notifying your super fund of your intention to claim the deduction.
One very important point to be aware of is the concessional contribution cap, which is the maximum amount you can contribute to your super fund at the concessional tax rate. Concessional contributions are subject to annual limits set by the Australian Taxation Office (ATO) Currently, the cap is $27,500 per individual for the 23/24 financial year. However, this limit is subject to change, its recommended to give us a call to run over what options you have around these contributions.
These contribution types are also known as an “after-tax contribution,” referring to a type of contribution made to a superannuation fund from your after-tax income. Non-concessional contributions do not offer any tax concessions or deductions when you contribute the money to your super fund.
The following are what make up “non-concessional” contributions”
Personal Contributions: These are voluntary contributions made from your after-tax income directly into your superannuation fund.
Spouse Contributions: If you have a spouse who is under the age of 75 and earns a low income or is not currently working, you may have an opportunity to make non-concessional contributions to their super fund on their behalf. This could entitle you to a tax offset, providing some tax benefits.
It’s important to note that non-concessional contributions are subject to annual limits set by the Australian Taxation Office (ATO). The contribution caps dictate the maximum amount you can contribute to your super fund without incurring additional taxes or penalties. The current cap for the 2024 financial year is $110,000 for most individuals or up to $330,000 if utilising the “bring-forward” rule, which allows you to make up to three years’ worth of non-concessional contributions in a single financial year.
Additionally with the introduction of the transfer balance cap, the non-concessional cap is also dependent on your total super balance. If this is higher than $1.9M you will not be eligible to make these contributions. If you are close to this threshold there may be strategic options for you that we can discuss with you. It’s crucial to be mindful of these caps to avoid exceeding the limits and potentially incurring excess contribution tax. Additionally, it’s essential to keep track of any contributions made on your behalf by your employer or spouse, as these contributions may count towards your non-concessional contribution cap.
Making non-concessional contributions can be an effective way to grow your retirement savings without the need for additional taxation when withdrawing the funds during your retirement. As always, seeking advice from a financial advisor can help you understand the best strategies for managing your super contributions and ensuring they align with your long-term financial goals.
Navigating the superannuation system can be complex, and it’s essential to make informed decisions that align with your financial goals. I strongly recommend consulting with me or any other financial advisor to optimise your contributions and maximize the benefits of the superannuation scheme based on your unique financial situation. This way, we can create a tailored retirement plan that secures your financial future and brings you peace of mind during your non-working years.