Would you ever say no to an extra $80K in your pocket?
Neither would we!
But that’s what millions of everyday Aussies are doing every year – without even knowing it.
The Power of Regular Voluntary Super Contributions
As the end of the financial year approaches, now is the time to consider giving your superannuation a positive boost! Not only will you bump up your super balance, its a tax win!
Small, regular voluntary contributions can significantly impact your retirement savings and even lower your tax bill.
The power of regular super contributions
We all know a little bit goes a long way – the same goes for voluntary super contributions. We often think that saving for retirement requires massive contributions only for the uber-wealthy, but it doesn’t!
Even modest, consistent contributions add up over time.
Here’s an example:
30-year-old Jemma contributes an extra $1,000 annually to her super for 15 years. This equates to a whopping $80,000 more in her super by the time she retires at 67! That’s just under $20 a week for $80K.
That’s the power of compound interest, friends!
And the earlier you start, the more time it has to compound, and grow.
How small contributions make big differences
Let’s break down the potential growth in your super balance based on making additional contributions.
We’ll start by comparing additional contributions of $500 and $1,000 per year.
The table below shows the projected growth over 10 and 15 years, starting at age 30.
As you can see, even modest contributions of $500 a year can result in a tidy increase in your super balance over time.
How can super reduce your tax bill?
The government doesn’t give away many valid tax reduction strategies too often. But this is one of them!
Putting it simply, it’s as easy as:
- Making a voluntary contribution
- Claiming it as a tax deduction
- Paying less tax!
How is this possible??
Contributions to your super are typically taxed at a lower rate (15%) compared to most Australians’ marginal income tax rates, which can be as high as 45% for high-income earners.
Let’s look at another example.
30-year-old Todd earns $80,000 a year. If he makes a $1,000 voluntary contribution to his super and claims a tax deduction, he could get a refund of around $320 when lodging his tax return.
His take-home pay only reduces by $680, BUT $850 is added to his super balance. That’s a net benefit of $170.
This strategy allows you to build your super and reduce your tax bill at the same time.
There is no time to wait!
If you want to take full advantage of these benefits this financial year, don’t leave it to the last minute.
To ensure your contributions are processed on time, aim to make any additional contributions at least a week before June 30.
Very important!
Don’t forget to submit a ‘Notice of Intent’ form to your super fund before lodging your tax return if you want to claim a tax deduction. This is an essential step in the process to ensure you can claim it as a deduction.
Concessional contributions caps
Remember, there’s a cap on how much you can contribute to your super at the concessional tax rate of 15%. For the 2024-25 financial year, the cap is $30,000, including any mandatory contributions your employer makes on your behalf.
If you exceed this cap, you could face additional tax penalties, so it’s important to track your contributions correctly.
You can do so by logging into your ATO account and checking your concessional contributions cap amount.
Setting up regular contributions
Out of sight, out of mind, right?
To make boosting your super even easier, set up a salary sacrifice arrangement with your employer, which adds a portion of your pre-tax salary to your super every pay cycle.
Over time, you won’t even notice the reduction in pay. It will become your new norm. You’ll grow your super and benefit from a tax-effective way to save for retirement.
Due for a review of your Super fund?
Not feeling the love (or returns) from your super fund? It might be time for a review.
End of financial year is a great time to review your super fund’s performance and fees.
Reach out to the team if you’d like us to assist in a review of your fund and tax-effective strategies to boost your super and save for retirement.
