Wise to pay extra now for super incentives

Putting spare cash into your fund this month pays off in the long-term, writes Anthony Keane

EARLY access to superannuation has dominated debate about retirement nest eggs in recent weeks, but it’s clouding other benefits now available to super savers.

June is a great time to revisit your super because taking action this month can deliver thousands of dollars in tax savings and other long-term benefits.

More than two million Australians are tipped to take advantage of the government allowing early-release super withdrawals of up to $20,000 per person during COVID-19, but that’s still a small proportion of the nation’s 27.5 million super fund accounts.

Many people have spare cash after cancelling travel, special events and other big expenses, and Perks Private Wealth director Simon Wotherspoon said government stimulus payments could help some people contribute extra to their superannuation account.

CO-CONTRIBUTION

If your gross income is below $38,564 and you put $1000 of after-tax money into super, the government will inject $500 into your fund.

“It’s like a 50 per cent return,” Mr Wotherspoon said.

People earning up to $53,564 this financial year can receive some co-contribution.

TAX-DEDUCTIBLE CONTRIBUTIONS

Also known as concessional contributions, these payments include employer compulsory contributions and salary sacrifice and are capped at $25,000 a year. Most Australians can make these contributions at any time, and June is a popular period for it.

CARRY FORWARD SUPER

This financial year is the first time people can carry forward unused concessional contributions from the previous year and add them to this year’s annual $25,000 limit, as long as their balance is below $500,000.

It delivers flexibility to manage tax issues such as capital gains.

SPOUSE INCENTIVES

“If, on behalf of your spouse, you make an after-tax contribution to their fund of $3000, you get a tax offset of $540 – equating to an 18 per cent return,” Mr Wotherspoon said. Spouses could also split up to 75 per cent of their super contributions with their partner, to help couples equalise their account balances, he said.

This can help with retirement planning strategies.

Goldsborough Financial Services director Brenton Miegel said June was a good time for people to talk with their super fund or financial planner.

He said super remained the most tax-effective place to save money – with low tax while saving and zero tax at retirement – but warned younger savers to be conscious of its preservation rules.

“A 25-year-old putting plenty of money in early is great, but they can’t touch it until they’re 60,” Mr Miegel said. He said people should check employers were actually making their compulsory contributions, and this could be done online or by contacting super funds or advisers.

Reviewing life insurance in super was also worthwhile doing right now, Mr Miegel said.

“You could find yourself under-insured or even overinsured, or you have a level of cover – particularly income protection insurance – that doesn’t reflect your current income,” he said.