You’d be forgiven for thinking the superannuation rules are constantly changing, especially in recent times when the government made noises about changing the tax rate on balances over $3M.
While nothing has come of that yet, even if it’s proposed in this year’s Federal Budget, it will still need Royal ascent before becoming law. However, it does beg the question “is Super still a good financial planning and retirement saving option?”
The short answer is yes. Superannuation still provides very worthwhile tax effective financial planning and retirement saving benefits, and importantly, not all rule changes are to your detriment. Here we explore three rules that could be of considerable benefit.
Superannuation is a long-term retirement planning tool, and the earlier you begin contributing (up to your maximum cap) the more opportunity you’ll have for capital growth as compounding interest bolsters your account balance and enhances your personal wealth.
There are plenty of good reasons why super is still a good financial planning and retirement savings option.
The most obvious is that it’s a form of forced retirement savings.
Outside of turning 65, retiring when you reach your ‘preservation age’ (between 55 and 60 years depending on when you were born) or for legal, financial hardship or compassionate reasons, it’s not easy to get your hands on your super.
Which is why you should only contribute the cash you don’t need!
The second is tax savings.
Any concessional (before tax) contributions made to super are taxed at 15% (plus Medicare levy).
For high earning Australians who can pay up to 45c in the dollar this is a significant tax discount. Even for very high earners who may be subjected to Division 293 Tax (which adds an additional 15% tax on concessional contributions for those earning more than $250,000) it’s still a lot better than forking out the otherwise required 45% marginal tax plus the 2% Medicare levy!
There have been other worthwhile superannuation rule changes that can help you boost your super balance, too.
The catch-up contribution rule was introduced back in July 2019, and it allows you to make the most of unused contribution cap amounts from previous years (as long as your superannuation balance is under $500,000) without paying extra tax.
However, this opportunity expires after 5 years, which means if you have an unused cap amount from 2018-19 you’ll need to use it by 2023-24.
The 3-year Bring Forward rule also provides opportunity to get more money into super.
As the name of the rule suggests, you can make use of your future non-concessional (after tax) superannuation contribution caps to contribute up to $330,000 ($110,000 per year for 3 years) into your super account in a single financial year.
This is a tax effective financial planning strategy often used by those who may have surplus cash as a result of receiving an inheritance or selling an asset. However, as you’d expect there are a number of rule conditions relating to your age and super balance that must be met to qualify for this rule.
While the Downsizer Contribution rule has been around since 2018, in January this year (2023) the age limit changed (again!)
It’s now possible for people 55 years and older (previously 65 years in 2018, then 60 years in 2022) to sell their home and contribute up to $300,000 (each if you’re a couple) to superannuation without tax penalties even if that contribution results in your total superannuation balance exceeding $1.7M.
While not a rule per se, employer contributions made on your behalf will also change from July 1 this year. Increasing increase from 10.5% to 11%, this means more money will go towards your super balance without any additional effort from you.
Regular rule changes aside, superannuation can be complicated and it requires qualified advice and active management.
And, while we can be reasonably sure superannuation laws will continue to change in future, for now at least, in our view superannuation remains among the very good options for tax-effective financial planning and retirement saving.
With the end of financial year just a few short months away, now is the time to check in with your financial adviser for advice about regular super contributions, catch-up contributions and bring forward rules.
Remember, only contributions received by your super fund BEFORE June 30 will be considered for a tax deduction in this financial year.
To find out more about financial planning for retirement or to request a meeting, please contact Matt Lane or Alec Winter on 07 3720 1299 or email admin@wealthfundamentals.com.au.
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.