Superannuation is a ticket to huge tax savings and greater wealth

Australians can save hundreds of thousands of dollars in tax by using the superannuation rules wisely. Here’s how.

Superannuation funds had a tough 2022 – their worst annual investment performance since 2008 – but it shouldn’t bother most Australians wanting to grow a big stash of retirement cash.

The negative 4.8 per cent annual return for typical balanced funds was well below the two-decade average annual return of 6.1 per cent, but followed strong gains in 2019 and 2021. It was the first time since 2011 that super went backwards – an unusually long period between poor results.

Over the course of a career spanning decades, the 2022 super blip will have little impact on most people’s wealth, thanks to the power of compound interest that grows nest eggs dramatically.

If you really want to enjoy retirement, you can be proactive with some smart super strategies.

Hundreds of thousands of dollars extra can end up in your pocket – rather than ATO coffers – if you use superannuation and tax rules to your advantage. Legally, of course.

These five strategies can help save much more than 2022 wiped off super balances.

1. TAX-DEDUCTIBLE CONTRIBUTIONS

When your boss pays money into your fund, or you make voluntary contributions such as salary sacrifice, the government takes only 15 per cent in tax, rather than the maximum 47 per cent tax it takes from people’s wages.

Up to $27,500 of tax-deductible contributions – known as concessional contributions – can be injected into super each year, and many people are also allowed to make catch-up contributions if they didn’t use the full $27,500 cap in previous years.

2. BUILD A BIGGER BALANCE

On top of those tax-deductible $27,500 of contributions, Australians can also pump in $110,000 a year of their own after-tax money – using funds such as cash in the bank, an inheritance or money from selling an investment.

Understand the tax rules to grow your retirement wealth faster. Picture: iStock

These are known as non-concessional contributions and people are also allowed to bring forward two future years of these deposits, so a couple can potentially put $330,000 each into super in one financial year.

There is plenty of flexibility to build a big nest egg, as long as you are OK with locking your money away until retirement.

3. FREE MONEY FROM THE FEDS

Government incentives deliver other benefits too. The co-contribution scheme is available for people earning up to $57,000 a year and puts up to $500 into the super of someone who makes their own non-concession contribution of $1000.

The spouse contribution tax offset pays $540 a year to someone who puts $3000 into their low-income spouse’s super fund.

4. TAX-FREE RETIREMENTS

Superannuation rules for seniors are incredibly generous. Most people aged over 60 do not pay tax on any earnings or withdrawals from their super pensions. That’s why it’s wise to pump extra money into super as soon as possible.

There’s a cap on how much can be held in your super pension – known as an account-based pension – and it’s currently $1.7 million per person. This cap gets adjusted roughly in line with inflation and could rise further soon.

5. INVESTMENT PROPERTY

The tax-free retirement rules can deliver a massive benefit to property investors who have a self-managed super fund and use it to buy real estate as a long-term investment.

If that investment property is sold after they turn 60, they can avoid paying capital gains tax – a potential saving of hundreds of thousands of dollars. SMSFs can be complex, so seek advice.