Super tips to avoid costly end-of-financial-year mistakes
The end of financial year is looming and there’s plenty you can do to maximise your investment returns. Just don’t get caught in this common trap.
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Investors are making mistakes costing them thousands of dollars by rushing to beat the June 30 end of financial year deadline.
While it pays off to tidy up financial affairs before this month comes to a close, a knee-jerk reaction can prove costly.
Aware Super general manager guidance and advice Peter Hogg said June was a peak time for superannuation mistakes.
The fast-approaching June 30 deadline created a “perfect storm of rushed decision-making,” Mr Hogg said.
“People suddenly realise they haven’t optimised their super contributions and scramble to make last-minute moves, often without proper planning or advice,” he said.
“Most often, it simply comes down to not understanding the rules.”
Most super contributions, tax incentives and government schemes generally have June 30 deadlines, and missing them can translate to thousands of dollars of lost opportunities.
Super specialists say errors include voluntary contributions, co-contributions, spouse contributions, exceeding caps and other limits and failing to take advantage of the carry-forward rules.
Mr Hogg said thinking June 30 was the deadline for super fund contribution deadlines was a common error.
“You may think transferring funds on June 30 means you’re safe,” he said.
“However, contributions must be received by the fund before its cut-off date, which may fall days earlier depending on our method of payment.”
A majority of major super funds say members must make their contributions by June 23 to ensure the fund processes the money in time.
Vanguard Australia says this month is a good time to make voluntary super contributions, and calculated that a single $1,000 contribution at age 30 could grow more than eight times in value by age 67 to $8,438.
Someone earning $80,000 who injects $1,000 into super as a concessional contribution gets a tax deduction for it and a $320 tax refund, it says.
Vanguard Australia chief of personal investor Renae Smith said it was best to make additional contributions at least a week before June 30.
“For higher-income earners, a key issue is exceeding the concessional contributions cap,” she said.
“For this financial year, the cap is $30,000. Going over this limit can result in additional tax, so it’s important to keep track of all contributions, including those made by your employer.”
Colonial First State head of technical services Craig Day said another common mistake was people failing to check that all contributions reached their account, so they missed out on their entitlements.
“The best way to check is to log in to your super account,” Mr Day said.
“You can also use the ATO’s Super Guarantee estimator to check your entitlements, and if you believe there’s been a mistake, talk to your employer. There are ways to follow up super payments from past employers as well.”
Mr Day said for couples where one partner earned below $40,000 there was an easy mistake to be made by failing to take advantage of spouse contributions incentives, which provided a tax offset to the contributing spouse.
“To get the full tax offset of $540, you must contribute at least $3,000 and your spouse must earn less than $37,000,” he said. “The offset phases out at $40,000.”
Aware Super’s Mr Hogg said other incentives benefiting from pre-June 30 contributions included the $500 co-contribution scheme for low and middle income earners, First Home Super Saver Scheme and carry-forward contributions.
“If your total super balance was under $500,000 on June 30 last year, you may be able to contribute more than the usual cap by using unused limits from the past five years,” he said.
Mr Hogg said the impact on retirement savings of June superannuation mistakes could include higher tax bills, missed government payments and reduced benefits of compounding returns.
“Even small delays in getting contributions into your account can reduce the long-term growth of your super due to lost investment time,” he said.
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Originally published as Super tips to avoid costly end-of-financial-year mistakes
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