Superannuation strategies that can make you richer, faster

Don’t be put off by the constantly-changing super rules. Smart moves can make nest eggs grow quickly and save plenty of tax.

Talk about tax cuts, negative gearing and capital gains tax lately has created a lot of noise in the world of money, potentially pushing to the back of people’s minds the biggest tax break of them all.

Superannuation is changing again this year, for the better for most employees as compulsory employer contributions climb from 11 to 11.5 per cent from July 1, and now is the time to be thinking about what you can do with your super before then.

Workers, investors and retirees can save thousands of dollars a year with the right superannuation strategies.

Professional financial advice is valuable, but people who can’t find or afford a planner have other options to discover and maximise benefits. Call your super fund or visit ASIC’s Moneysmart.gov.au and the Association of Superannuation Funds of Australia’s superguru.com.au websites for tips and calculators.

People pay low taxes on contributions and income while accumulating super, and many who have retired after age 60 pay zero tax on their super income, capital gains and withdrawals.

These seven strategies can help supercharge a nest egg.

1. TAX-DEDUCTIBLE CONTRIBUTIONS

For decades, salary sacrifice has been the most common way to get money into super while enjoying tax benefits, because the contributions are taxed at just 15 per cent rather than a person’s marginal tax rate of up to 45 per cent.

In recent years, these pre-tax deposits, known as concessional contributions, have become more flexible and allow people to pump in money at any time and claim a tax deduction – up to their annual cap of $27,500, soon to be $30,000 from July 1 thanks to inflation indexing.

2. CATCH-UP CONTRIBUTIONS

If your super balance is below $500,000 at the start of a financial year, you also can make concessional contributions for up to five previous years of unused concessional contribution caps.

This is a great tax planning tool for people who have a large capital gain event, such as selling an investment, as they can offset much of the tax bill by putting extra into super.

You can grow your super and save tax at the same time. Picture: iStock

3. CO-CONTRIBUTIONS

The government pays up to $500 each year into the accounts of lower income earners who make contributions of $1000 into their fund from after-tax money such as wages or savings.

People earning below $58,445 can get some co-contribution, while those on less than $43,445 get the full $500 – an effective 50 per cent return on their money.

4. SPOUSE CONTRIBUTIONS

Want to beef up the balance of a low-income spouse and save some tax yourself?

If your spouse earns below $40,000 and you put $3000 into their fund, you could get a tax offset of up to $540.

5. SUPER SPLITTING

As couple head towards retirement it can be a good idea for both to have similar super balances, to help them manage asset caps and limits, retirement income, insurance and other issues.

People are allowed to transfer up to 85 per cent of their pre-tax super contributions from the previous financial year to their spouse, but should first check if their fund allows it.

6. AGE ADVANTAGES

Where one spouse and reaching pension age, their super can effectively be hidden from Centrelink assets testing by moving the money into the younger partner’s account. This may deliver an age pension boost.

7. DOWNSIZING?

People aged over 55 who downsize their home can each pump an extra $300,000 from the proceeds of the sale into their super without impacting other super caps, including the annual $110,000 cap for after-tax, or non-concessional, contributions.

Originally published as Superannuation strategies that can make you richer, faster