Superannuation Strategies for Wealth Accumulation
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Whether the end of the financial year is soon or you are getting an early start on the next one, it is always a good time to review your superannuation strategies. At Collins Mann, we help you devise ways to make the most out of your best financial investment – your superannuation – whilst also staying safe by not going outside of super contribution caps.
The following superannuation strategies have some merit in the current market:
Superannuation is not new, but the rules are constantly evolving. Getting the right advice about maximising your super is paramount. To help you along, here are some tried and tested superannuation strategies to consider:
Concessional contributions are inclusive of employer superannuation guarantee, salary sacrifice and individual tax-deductible expenditures. Should you go over the concessional contributions limit of $25,000 (as of 2020/21), it may result in fines and other financial consequences. If you are approaching that concessional limit, it might be time to think about all your options whilst you still have a chance to make adjustments.
You stand to save a significant amount of tax on income by voluntarily contributing the income to super in accordance with the concessional limits. If you are within the limit, it could be a good strategy for you.
Remember, super is a long-term savings strategy. Once your income is in super, you cannot take it out until retirement age and even then, it usually comes out gradually in the form of a regulated pension for the purposes of retirement. Your age and personal circumstances should be carefully considered before using this strategy.
Committing to periodic non-concessional superannuation contributions can be a prudent strategy for earning greater wealth in superannuation. The income tax rate on earnings derived from investments made inside the superannuation environment are compelling at just 15% for the entire duration of the accumulation phase (which may be years or decades long). Many individuals have a marginal tax rate between 34.5% and 47%, including Medicare, which you might otherwise pay on investing the same money outside super.
As an individual you may, depending on your circumstances, be able to direct as much as $100,000 per annum to non-concessional superannuation contributions, or potentially up to $300,000 in a single year if you qualify under the ‘bring-forward’ guidelines. Once your pension account balance reaches $1.6 million, the concession cut out.
Compounding returns at a much lower tax rate can massively increase your super balance over the longer term. For this strategy to work, you need your advisor to help you properly consider the tax rates you are currently paying on existing earnings, the likely term of your super investments and broader personal circumstances.
Sharing your superannuation contribution with the account owned by your spouse or partner is becoming a more popular superannuation strategies for couples. The number of couples taking advantage of spousal/partner contributions has been on the rise ever since the $1.6 million transfer balance limit was announced and put into effect. The limit dictates and controls the total value of superannuation you are able to access during the pension period where there is 0% tax on income.
Spousal contribution splitting may enable you to level account balances between the two parties given enough time. It also has the potential for you and your spouse, as a couple, to accumulate a larger superannuation portfolio, as a partner who reaches their transfer balance limit can continue making concessionally taxed super contributions via their partner’s super account.
In terms of how much you can split, it is possible to split as much as 85% of your concessional super deposits within a single financial year, as long as your partner does not exceed the age of 65 or has not reached the point of retirement. The concessional earnings that are split still contribute to the limit related to the individual that made the earnings.
If you find yourself in the situation where your partner’s earnings are below $40,000, that might mean you are eligible for a tax offset under the conditions of contributing to your partner’s superannuation balance. The tax offset you are eligible for is dependent on the earnings made by your partner and the amount you contribute to the account.
The offset has the potential to be as much as $540 should your partner be earning $37,000 or below, and you contribute $3,000 toward their superannuation before the end of the financial year.
To satisfy eligibility guidelines, your partner must be aged below 70 when you make the contribution. Should your partner be between ages 65 and 69, they are also required to pass a work test to be eligible. If your relationship is solid and you and your spouse intend to enjoy retirement together, sharing your super contributions with a lower income earning partner is a smart way to grow retirement income, as far as superannuation strategies allow.
For a more personalised analysis of your current superannuation position and a review of your superannuation strategies, contact the experts at Collins Mann. We’re waiting to take your call.
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Whether the end of the financial year is in the near future or you’re getting an early start on the next one, it is always a good time to review your superannuation strategies