Invest your Tax Savings in Super

We recently explored the tax changes from 1 July 2024 and the estimated tax cuts, based on your income. To read more about these tax changes, check out our article here. So, you’ll be receiving a tax cut and are considering investing in your super?

Benefits of Superannuation Contributions 

Contributing all (or some) of your tax savings to superannuation can provide the following benefits: 

• Superannuation is a powerful tool for accumulating wealth over time. The compounded benefit of tax-efficient contributions can lead to a higher balance in retirement, translating to a more comfortable lifestyle.
  

• If you have insurance premiums drawn on your superannuation balance, by making contributions to superannuation, you limit your premiums eroding your retirement savings.

• By claiming a deduction for your super contribution or salary sacrificing to superannuation, you can reduce your overall tax liability.
  

• Regular contributions, even if modest, contribute significantly to your financial security during retirement. Remember that superannuation is a long-term investment, and the benefits compound over time. 

Types of Superannuation Contributions 

Before we dive into more detail about how superannuation contributions may benefit you, let’s look at the types of contributions you can make to superannuation and the tax implications of these contributions:

Pre-Tax Super Contributions 

• You have the option to ask your employer to allocate part of your pre-tax income directly into your superannuation account. This is commonly referred to as Salary Sacrifice or Salary Packaging.

• You also may be able to make a personal contribution to your super fund and advise your fund that you will be claiming a tax deduction for the contribution. 

• These contributions are known as a ‘concessional contribution’ and are taxed at 15% within your super fund. 

• For most people, this is lower than your marginal tax rate, therefore you pay less tax whilst boosting your superannuation savings.

• There are strict limits on how much you can contribute under the ‘concessional contribution cap’, currently $27,500 during the 2023/24 Financial Year and rising to $30,000 during the 2024/25 Financial Year.

  • This cap includes the combined total of your employer contributions and your salary sacrifice contributions.

  • If you haven’t utilised your full cap amount in prior years, you may be able to carry-forward the unused cap and make a higher contribution this year. Check out our recent article here where we discussed this concept further.  

After-Tax Super Contributions 

• You can also make contributions to your superannuation from your after-tax pay. This may be beneficial if your contribution will exceed the concessional contribution cap or if you are looking to further boost your retirement savings.

• This contribution is known as a ‘non-concessional contribution’ and has no tax withheld by your super fund.

• There are strict limits on this contribution type too, currently $110,000 during the 2023/24 Financial Year and rising to $120,000 during the 2024/25 Financial Year.

Note: There are other contribution types including Government Co-Contributions, Downsizer Contributions and Spouse Contributions that we haven’t explored in this article.

How do my super contributions benefit me? 

Let’s take Ben, aged 40 with income of $120,000 and a superannuation balance of $200,000. From our recent article, we know that Ben is likely to receive a tax-cut of $2,679 from 1 July 2024. Let’s assume Ben contributes $200 per month ($2,400 per year) to his super balance.

Using the Moneysmart Superannuation Calculator found here and using the default assumptions, we’ve got the following outcomes:

 Notes:

1. All assumptions utilised can be found on the Moneysmart website.

2. The above does not include the personal taxation benefit of concessional contributions.

To find out more about how superannuation contributions can boost your superannuation balance, check out the Moneysmart calculators or give us a call to discuss your specific situation.