The benefits of voluntary super contributions you aren’t thinking about

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July 12 2021
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Voluntary contributions to your superannuation can go a long way.

The benefits of voluntary super contributions you aren’t thinking about

Voluntary super contributions are one of the easiest ways to boost your payout when it comes time for retirement.

Making an extra contribution of as little as $20 each week for more than 30 years can end up more than doubling what would otherwise be a $30,000 contribution through compound interest.

However, for those looking to make voluntary contributions to their superannuation, it’s important to know the difference between concessional and non-concessional contributions.

According to the ATO, non-concessional contributions encompass payments your employer makes on your behalf, from your after-tax income. Concessional contributions, on the other hand, include salary sacrificing and personal deductible contributions.

Why would you sacrifice your take-home pay?

Those with a stable or higher income may opt for a salary sacrifice voluntary contribution, which essentially sees an individual dedicate more of their pay to super, therefore reducing the sum they pocket today.

The advantage of this arrangement is that these contributions are taxed at 15 per cent rather than your usual marginal tax rate.

“The start of a new financial year is a good time to consider whether salary sacrificing into super might suit you. A financial adviser can talk you through the pros and cons of this approach,” Elinor Kasapidis, a senior manager for tax policy at CPA Australia, told nestegg.

Personal deductible contributions work similarly for the self-employed or retirees, allowing them to juice up their super contributions where desired.

Individuals are allowed up to $27,500 a year in concessional super contributions.

The limit for non-concessional super contributions is higher at $110,000 per year. This type of super contribution is taxed at your marginal tax rate.

An example of a non-concessional contribution is the spouse contributions tax offset, which allows partners to make contributions to one another’s retirement savings. Aside from the obvious long-term benefits of doing this, you can also score an 18 per cent tax offset on up to $3,000.

Alternatively, low-income earners are also eligible for a co-contribution from the government of up to $500 each year if they make less than $56,112 in some situations.

“Superannuation is a tax-advantaged environment. What this means is that you’ll generally pay less tax on income contributed to or earned within your super than outside it,” Ms Kasapidis said.

If you make regular voluntary contributions to your superannuation, you might even be eligible to reduce the amount of taxes you pay annually through deductions, so be sure to speak to an accountant to find out your options.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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