Opinion
I’m 53, in reasonable health and earning (after tax) about $5600 a month. As long as my health remains in check, I can keep working. Is there any benefit in salary sacrificing at this point, and does the government offer any kind of co-contribution scheme to assist people like me in boosting our super balances?
Your income level is such that you won’t qualify for a government co-contribution, but in your circumstance that is not necessary because the tax savings produced by salary sacrificing into super produce enough of a benefit to make it worthwhile.
It is important to flag here that I can’t comment on whether you should or shouldn’t be salary sacrificing to super without understanding your full financial picture. Money that you send to super can’t be used for debt reduction, or to accumulate an emergency fund, both financially prudent fundamentals.
Preservation rules mean contributed money can’t be accessed until you are at least 60, and so the advisability of sending extra savings to superannuation depends on your other goals.
With that caveat out of the way, salary sacrificing to superannuation is very attractive. Your marginal tax rate is 30 per cent. Money you send to super via salary sacrifice will be taxed at 15 per cent.
Through salary sacrificing to super, you halve the amount of tax you pay on that income. Once your savings are in super, earnings on the money are taxed very lightly, and ultimately, your super will become an income stream whereupon you will be able to draw out tax-free income.
Salary sacrificed contributions are included within the concessional contribution cap, which is $30,000 a year. Start by determining how much room you have within this cap once employer contributions have been allowed for.
A particularly good strategy can be to salary sacrifice normal incremental pay rises. If you do that for several years in a row, the amount being sent to super can be meaningful, yet all the while you’ve kept receiving the same amount into your bank account each fortnight.
I will soon be selling a rental property I have owned for about 30 years. Will I be able to voluntarily deposit a lump sum into my superannuation fund to reduce my CGT liability? Secondly, will I be able to withdraw this same amount from my superannuation fund back to my savings account soon after the deposit? I am 68 and working full-time.
If you have room within your concessional contribution cap ($30,000), you could make a tax-deductible super contribution given you are still working. This would offset some of the CGT liability. Because the amount here (cap room) probably won’t be large, the impact may not be enormous.
A potentially greater opportunity exists, however, if your super balance was under $500,000 at the beginning of the financial year. In that circumstance, you may also be able to make catch-up contributions using any unused concessional caps over the past five years. You can check what you have available in this regard via the ATO page in MyGov.
At 68, you have full access to your superannuation savings, irrespective of your work status. It would therefore be possible to take money back out of super if you wished.
Consider whether this makes sense, though, as a tax-free income stream from super once retired is pretty hard to beat. If you withdraw the money, what better use will you put it to?
Paul Benson is a certified financial planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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Paul Benson is a Certified Financial Planner, and host of the Financial Autonomy podcast.
