Your guide to superannuation strategies
With the new financial year here, your super fund must not be forgotten. Understanding the ways you can save for your retirement and minimising tax is a huge part of working with an accountant.
We know retirement planning can be complicated, no matter how close you are to retirement. We’ve collected strategies to help you get ready for the next part of your life.
Preparing for retirement long before you’re ready to retire
There are two types of phases in respect of your super funds: the accumulation phase and pension phase.
The accumulation phase is the period when you set your investment strategy and invest your funds to accumulate wealth before retirement. It is also the period where contributions are made either on your behalf by your employer or personally contributed by you.
The pension phase is when you start drawing on your accumulated funds. This is either when you retire or are eligible under a “condition of release”. The most common conditions of release for paying benefits are when the member:
- has reached their preservation age and retires.
- has reached their preservation age and begins a transition-to-retirement income stream.
- ceases an employment arrangement on or after the age of 60.
- is 65 years of age (even if they haven’t retired).
- has died.
Why should you invest in a super?
A superannuation fund can work for you in a number of beneficial ways, both within your working life and during retirement:
- Protection from bankruptcy: In a typical investment, your savings are fair game for creditors if you go bankrupt. A regulated super fund, however, is not impacted if it’s kept within the fund.
- Employer contributions: It’s mandatory for employers to pay a minimum of 10.5% of an employee’s “ordinary times earnings” on their behalf into your fund – in a sense it is a form of forced saving that might otherwise be recklessly spent.
- Pay less on income tax: When working with your employer, you can set up a salary sacrifice agreement for your super. In this situation, instead of paying your individual marginal rate of income tax, your contribution will be taxed at 15% as concessional contributions.
- Pay less tax on investment returns: Within a super, the earnings you accumulate on your balance are taxed at a low rate of 15%..
- Automatic insurance cover: Many public sector funds offer life insurance without the need to check your prior health history.
- Advice is always included with your super fund: Working with accounting and financial professionals, you can always tap into them for advice on tax strategies and investing, before and after you reach retirement age.
Getting the best investment strategy for your super goes hand in hand with understanding how they work and the options available to you. As you consider where to invest, let’s take a look at a few strategies to get the most out of your savings.
Consolidate your super funds
Many people over the years can accumulate super fund accounts especially when changing jobs or careers through the use of employer suggested “default funds”. It is an effective strategy to rollover past super accounts into one fund and moving forward stick to it!
This is also simplified if you operate a Self Managed Super Fund, as it is always front and centre!
Make tax deductible personal contributions
You could also make personal contributions to your super fund and claim the amount as a tax deduction if you are eligible. This strategy results in an overall tax saving and also increases your super balance. To claim a tax deduction, you must submit a Notice of Intent form and receive an acknowledgement from the super fund before completing your tax return.
Make after-tax contributions
Known as a non-concessional contributions, broadly you can make a contribution up to $110,000 per financial year taking into account the transfer balance cap of $1.7 million. In some circumstances, you can bring forward two years’ worth of concessional contributions in one year — known as the ‘bring forward provision’ — which allows you to contribute up to $330,000.
Split contributions with your spouse
If your spouse’s annual income is less than $40,000, you can make contributions on their behalf with the intention of equalising your super balances.
Working with Wilson Porter
The super advisors at Wilson Porter have the experience and advice you need to get ahead of your retirement and make the most out of your money. To learn more or to get started, contact a Wilson Porter accountant today.