How much can I salary sacrifice into super?
Have you ever wondered how much you can salary sacrifice into super? Well, wonder no more. In this blog post, we’ll break down the current concessional contribution limit and explain why it’s important for financial advice clients to be aware of it.
What is a concessional contribution limit
A concessional contribution limit is the maximum amount of money you can contribute to your super from your pre-tax salary. This means that any money you put into super before tax has been taken out. The current concessional contribution limit is $27,500 per year.
Why should I care about my concessional contribution limit?
The reason why it’s important to be aware of your concessional contribution limit is because any amount over this limit will incur a penalty from the Australian Taxation Office (ATO). This penalty can be up to 47%, so it’s best to stay within the boundaries! Also, when you’re planning for retirement and making decisions about how much money to put into super each year, having an understanding of the concessional contribution limit will help ensure that you don’t go over it by mistake.
How do I know if I'm going over my concessional contribution limit?
Your best bet is to track your contributions throughout the year and make sure that they don’t exceed $27,500. Your super fund should provide you with statements so that you can keep track of how much money has gone in each month – use these as a guide! Alternatively, if your employer offers salary sacrifice options then they should also keep tabs on how much goes in each month.
What is the carry forward concessional cap?
If you have a superannuation balance of less than $500,000 on July 1 of the financial year you may be eligible to contribute extra amounts for what you haven’t used in the last 5 financial years. What this means for you is if you have only contributed $10,000 per year for the last 5 years, your carry forward balance is what is left up to the cap each year.
- From 1 July 2021, the general concessional contributions cap is $27,500 for all individuals regardless of age.
- For the 2017–18, 2018–19, 2019–20 and 2020–21 financial years, the general concessional contributions cap is $25,000 for all individuals regardless of age.
This means $15,000 for the first 3 years plus $17,500 available for next 2 years = $80,000. This means you could contribute up to this amount and claim a tax deduction for the year. Of course how much you earn matters.
You can check your carry forward concessional cap in your MyGov account online.
How else can I contribute to superannuation?
You may not have set up salary sacrifice early in the year, or you may be worried with lumpy income that you might exceed the cap. Fear not, another way you have more control over contributions is to make them as a non-concessional contribution initially then after the financial year lodge a notice of intent to claim a tax deduction with your superannuation fund before you complete your personal tax return. This means you could put a lump sum in, lets say $20,000 and your employer puts in their amount which will vary slightly due to pay cycles, and you can lodge this form and claim up to the last cent of your contribution cap. This system was intended for self-employed people, however has been opened up to employees in recent years.
How much can I salary sacrifice into super?
All in all, knowing how much money can be sacrificed into superannuation is essential for anyone looking at their finances long-term. The current concessional contribution limit is $27,500 per year, so make sure that whatever contributions are made never exceed this amount – otherwise there may be hefty fines from the ATO involved.
Advantages of salary sacrificing into super
Salary sacrificing into superannuation is a powerful strategy that offers numerous advantages for individuals looking to enhance their retirement savings. By redirecting a portion of your pre-tax income into your superannuation account, you can unlock a range of benefits that can significantly impact your long-term financial well-being.
Tax Savings
One of the primary advantages of salary sacrificing into superannuation is the potential for tax savings. By diverting a portion of your pre-tax income into your superannuation account, you reduce your taxable income for the year. As a result, you pay less income tax, which can result in substantial savings, particularly for individuals in higher tax brackets. This tax efficiency can help you keep more of your hard-earned money and accelerate the growth of your retirement savings.
Superannuation Contributions Tax
When you make salary sacrifice contributions, they are taxed at a concessional rate of 15% within your superannuation fund. This rate is generally lower than your marginal tax rate, making salary sacrificing an effective way to minimise the tax impact on your income. By taking advantage of the concessional tax rate, you can make more significant contributions to your superannuation fund, ultimately boosting your retirement savings.
Long-Term Compound Growth
Salary sacrificing allows you to harness the power of compounding returns. By making regular contributions over an extended period, your funds have the opportunity to grow exponentially. The earlier you start salary sacrificing, the longer your investments have to compound, potentially resulting in substantial growth over time. Taking advantage of the time value of money can significantly impact the final value of your superannuation savings and provide you with a more comfortable retirement.
Retirement Readiness
Building a robust superannuation balance through salary sacrificing ensures that you are better prepared for retirement. By increasing your contributions, you can accelerate the growth of your retirement savings and potentially achieve your retirement goals sooner. The additional funds accumulated can provide you with greater financial security, allowing you to enjoy your retirement years without financial stress.
Employer Contributions
In many cases, employers match or contribute an additional amount to an employee’s superannuation fund when salary sacrificing is utilised. This means that for every dollar you contribute through salary sacrifice, your employer may also contribute an additional amount, effectively doubling your savings. Employer contributions are an excellent opportunity to maximise the benefits of salary sacrificing and boost your retirement savings even further.
By staying informed and keeping tabs on what’s going in each month via statements provided by your employer or super fund provider, financial advice clients can rest assured that they won’t fall afoul of rules set by the ATO.
