The end of the fiscal year is fast approaching and that means it’s time to focus on the retirement pension to ensure you are maximizing your benefits in the current fiscal year.
One way to do this could be to make a voluntary contribution.
And if that’s what you plan to do, you need to act now.
“You have to act well ahead of time,” said Michael Abrahamsson, director of Flinders Private Wealth.
“So if you make a contribution using BPAY, a wire transfer, or through your employer, don’t expect the last two working days because there could be a delay. “
Check your contribution limit
The Australian government has annual limits on pension contributions, so you should check to see if you are still within these limits.
The annual ceiling for “concessional” contributions is $ 25,000, while the annual ceiling for “non-concessional” contributions is $ 100,000.
The first will increase to $ 27,500 and the second to $ 110,000 on July 1.
Preferential contributions include compulsory employer contributions, wage sacrifice payments and deductible personal contributions that you can claim as a tax deduction.
The first two involve paying part of your salary to the super before paying taxes on it and are processed by your employer.
And the third is to make voluntary contributions with after-tax dollars (i.e. transfer funds from your bank account to super) and claim a tax deduction on those payments when you file your tax return.
Such contributions offer a major tax advantage, as they are taxed in your super fund at a rate of 15 percent – which for most people is much lower than theirs. marginal tax rate.
“If you have an income over $ 45,000, any extra money you invest in Super will save you 19.5 cents on the dollar,” said Robert Goudie, director of Consortium Private Wealth.
And for those with higher incomes, the savings are even greater unless you earn more than $ 250,000 per year.
At this point, the super contribution tax drops from 15 percent to 30 percent, which still leaves a 17 percent tax advantage.
Hot tip: You can find out how much you can donate to super without exceeding your concessional contribution limit by accessing the ATO online service through your MyGov account.
Click on the “Super” drop-down bar, then navigate to “Concessional Contributions” under the “Information” tab to see the limit of your available concessional contributions.
The ATO service can also tell you how many unused concessional contributions you can “carry forward” from previous tax years, a concept we explain below.
Since 2018-19, the federal government has allowed Australians to carry over their unused concessional contribution ceilings from previous years.
The aim of the program was to help older Australians who wanted to build up their super pay in the years leading up to retirement.
This means that in certain circumstances, members can contribute more than $ 25,000 into their superannuation in a year without having to pay additional tax.
Chartered Financial Advisor Craig Sankey gave this example in a recent TND item:
Suppose Tina wants to maximize her concessional contributions in 2020-2021 by making either wage sacrifice contributions or tax deductible contributions.
In the previous two fiscal years, it was well below its concessional cap, having made concessional contributions of $ 10,000 in 2018-2019 and concessional contributions of $ 15,000 in 2019-2020.
This means that it might be able to make up to $ 50,000 in concessional contributions in 2020-2021, as shown in the following table:
Hot tip: Concessional dues include your employer’s SG payments, and the deferral measure is only available to people with a super balance of less than $ 500,000 as of June 30 of the previous year.
Low-income people get a boost
The federal government also runs a program to help low-income people supplement their super.
If you don’t make more than $ 39,837 per year and you make a voluntary super contribution of $ 1,000, the government will put $ 500 into your super fund to encourage you to save more.
The payment is known as’great co-contribution‘and reduces annual earnings over $ 54,837, with the maximum payout amount being $ 500.
If your annual income is between $ 39,837 and $ 54,837, your maximum entitlement will gradually decrease as your income increases.
And if you contribute less than $ 20, the government will pay the minimum amount of $ 20.
Members do not need to request payment.
If you are eligible for the program and your super fund has your tax file number, the government will make the payment automatically.
Some other points to consider
- The pension guarantee will increase from 9.5% to 10% on July 1, which is worth considering when reviewing your wage sacrifice agreements
- The federal government has extended for another 12 months the temporary reduction in the minimum pension withdrawal rates introduced during the stock market crash of last year. Most large industrial and retail funds have said they “are going to apply the minimum, so if you need more than that, you should go to your fund,” Abrahamsson said. The exact rates are included in the table above.
The new daily is owned by Industry Super Holdings