How to be a super hero
Cut tax in a single blow, power up your savings and fight for a richer retirement with these strategies , writes Anthony Keane
THERE’S no better time than July to set up some superannuation strategies that will save you thousands of dollars in tax or build a bigger nest egg faster.
The most common super savings trick, salary sacrifice, is just one of several ways to make a super start to the new financial year. Here are five of them. 1. SHARE IN TAX SAVINGS Salary-sacrificed contributions are taxed at just 15 per cent rather than your marginal tax rate of up to 47 per cent.
Most employers will allow it but make sure your salary sacrifice contributions and compulsory 9.5 per cent employer contributions don’t combine to push you over the annual cap of $30,000 ($35,000 for people aged over 49).
“You can only agree to sacrifice income you haven’t earned yet,” says Colonial First State head of technical services Craig Day, so try to start now.
Other super tax incentives, such as cocontributions and spouse contributions, can be done later in the financial year. 2. TALK IT UP Club Plus Super’s Stefan Strano says picking up the phone and talking to your super fund about strategies and investment options is a simple step that’s often overlooked.
“Your fund is there to help you develop an effective superannuation strategy so speaking to them in the first instance will likely help ensure you maximise your nest egg,” he says.
“Many funds now have associated financial planners and if yours does, it would be worthwhile involving a planner in any strategy discussion .” 3. CHECK YOUR INSURANCE Personal insurance such as life, disability and income protection cover is vital, and Mobbs Baker Wealth director Scott Baker says buying it in super uses your fund’s savings rather than your own hip pocket.
“You are able to salary sacrifice to supplement your super fund, effectively paying the insurance premiums before tax,” Baker says. However, insurance policies can be convoluted and some features are not available inside super polices, he says.
Day says people who are nearing retirement and have paid down their debts may be able to reduce their insurance cover and costs.
“Premiums can be a drain on your retirement savings – akin to not making additional contributions,” he says. 4. CONSOLIDATE TODAY Almost half of all working Australians have more than one super account, many of them unnecessarily wasting money by doubling up on administration fees.
Strano says these fees work against the growth of your nest egg. “There are some great tools that exist to help you track down any lost super and you should only have to go through this process once,” he says. 5. RETIRING Pre-retirees can get huge tax benefits through transition to retirement strategies, which involve starting an account-based pension and drawing a tax-free income from that while salary sacrificing as much as possible to reduce the amount of tax payable.
Baker says implementing this at the start of the financial year will help with budgeting and tax savings, “rather than conducting the same strategy at the end of the year on an aggressive basis to try and get the most out of it”.