One effective way to enhance your retirement savings is by maximizing government incentives and understanding the rules around concessional and non-concessional contributions.
Contribution strategies start with awareness of the annual cap on concessional contributions. From mid-2021, the cap sits at $27,500, inclusive of employer contributions and personal tax-deductible amounts. You can even utilize the unused portion of your cap for five years retrospectively if your balance is below $500,000, thanks to the carry-forward rule initiated in 2018. This provides a planning opportunity for those who had lower contributions in earlier years. Excess contributions, however, are taxable, but the initial 15% tax from your super fund can be offset. Moreover, excess can be withdrawn to manage the tax obligation better.
Also, personal contributions that are tax-deductible can help in reducing taxable income if they remain under the cap, including those derived from self-employed, investment, or capital gains revenue.
Meanwhile, non-concessional contributions, pooled from after-tax income, offer another route. As of mid-2021, up to $110,000 annually can bolster your super without attracting tax on entry – a privilege that disappears once your balance eclipses the general transfer balance cap. Propelling this further, the 'bring-forward' option permits up to $330,000 in contributions over three years for individuals under 75.
If you have superfluous non-concessional contributions, it's possible to extract them from your super fund sans monetary sanctions. On top of that, any related earnings can be taxed at your marginal rate, factoring in a 15% offset. Declining to withdraw excess amounts leads to a 45% tax rate, plus the applicable Medicare levy.
The government also encourages retirement savings by matching 50% of eligible personal contributions, with a maximum of $500 for those earning below $43,445 annually. Additionally, this government co-contribution fades as incomes rise to a threshold of $58,445. Eligibility rests on various stipulations, including income conditions, age limits, lodging a tax return, and keeping below certain superannuation balance caps.
Low-income earners reaping up to $37,000 annually acquire the Low-Income Superannuation Tax Offset, which refunds tax paid on super contributions up to $500. One need not apply for this offset, as the Australian Taxation Office automatically administers it to qualifying individuals.
Further emphasizing family financial planning, tax offsets up to $540 are available when contributing to a low-earning or non-working spouse's super, pared down as the spouse's earnings increase over $37,000 and ceasing beyond $40,000.
Much of these contributions and perks mandate that your superannuation fund possesses your Tax File Number. Without it, contributions could be taxed at the highest marginal rate or not accepted at all.
To exploit these avenues, take actionable steps like making an eligible non-concessional contribution based on your income level, and ensure you file your tax return accordingly. Watch as these smart moves potentially net government contributions deposited directly into your superannuation fund post-filing.
