Nike is big in our house, I hear “Just Do It” a lot from my kids. I use it on them when it comes to cleaning their bedrooms and homework! They love anything with a Nike logo, sneakers, slides, soccer boots, clothes, you name it. Last weekend we saw a movie “Air”, we thought it was about Michael Jordan, it turns out it was about how Nike signed Michael Jordan and their brand took off. I loved it, my son, not so much. Nike had a great brand, but breaking into the basketball market took thinking outside the box, planning and a great product.
It’s a stretch (I know) but superannuation is a bit like Nike basketball shoes. Super is a great “product”. In fact, I think it’s the best for structure for retirement savings. Nothing beats compounding investment returns and a low tax rate for good outcomes. You need planning to get the best outcome from superannuation. If you forget about it until you’re 50, you’ve missed an enormous opportunity for your retirement. Sometimes you need to think outside the box and look for ways to make your super work hard for you. For most people, after their home, superannuation will be the next most important asset you own.
You get to choose your own super fund, so here are the key things to look out for:
- Check what your superannuation fund asset allocation is and the historical investment performance.
- The level of management fees – if you’re paying over 1.5% management fees it will really reduce the long term outcome for your super.
- Are you paying for insurance in your super fund? Do you need it?
If you’re employed, you have 10.5% of your income going into super each year. In 2024 it goes up to 11% and by 2026 it will be 12%. Employers have to pay super to your fund at least each quarter. By comparison if you work for yourself, you have no obligation to pay any super each year. You get a tax deduction when you pay super, but do you plan how much and how often? If you go for years without putting any money into super, you’ve lost a huge opportunity to grow your super.
Planning tips to boost your superannuation balance:
- Consolidate your super and only have one super account. Cut fees on multiple super accounts.
- Make the most of your $27,500 annual limit. Plan at the start of the year what your super contributions will be. “Pay yourself first” as soon as you get paid, put some into super. If you leave it till the end of June to make a big contribution, you won’t easily have the cash available.
- Know your contribution limits. From 2019, if you have not used all the annual contribution limit, you can carry it forward. You can take advantage of carry forward limits if you have surplus cash or want to take advantage of larger deductions for tax planning. Note you can only use carry forward contributions with super balances less than $500,000. Again, it’s all about planning to maximise this strategy and not miss out on it.
- Don’t pay penalties for going over your contribution limits. People exceed their $27,500 annual cap amount by not checking before year end how much of the cap is used already. We see this when people have multiple employers and/or are self employed. Also check that claiming deductions for life insurance policies paid via a super fund don’t put you over the limit.
Thinking outside the box – how can you use your super to help you grow financially?
- Pay tax at 15% on investment earnings! Invest in a super fund which is not in your own name for retirement savings.
- Use your super money as a deposit to buy your surgery or practice building or other rental property.
- If you have a capital gain coming up, plan to use super contributions to help offset the tax.
- Get a tax deduction for your life insurance, when paid from a super fund or super policy. Life insurance paid personally is not tax deductible.
- Maximise contributions to your fund at retirement by using the 3 year bring forward rules and proactively planning the timing of contributions.
- Get the government to help boost your family’s super balances by using co-contributions and spouse contributions.
For a discussion about how you can use superannuation tax effectively, give me a call.
By Alison Lacey, Chartered Accountant and Director
This article first appeared on the Practice Link blog: https://practicelink.com.au/superannuation-just-do-it/