Since 1 July 2024, you may have noticed an increase in your take-home pay. This is because the tax cuts legislated by the Australian Government to help provide cost of living relief came into effect at the start of the new financial year, with a person on the average wage of $73,000 getting an annual tax cut of $1,504.
Rising prices and higher interest rates have put pressure on many household budgets, so understandably some people may want to use the extra money to pay down debt or bills. But if you’re in a position to save rather than spend, you could use the additional income to boost your long-term finances—and even small changes can make a big difference.
One option is to use the extra money to increase your retirement savings by making voluntary super contributions. One of the great benefits of super is the ability for it to compound over time, allowing you to earn interest on interest or returns on returns, and the earlier you start, the more you’ll have for your retirement.
Maximising your super contributions at least 10-15 years before the age you plan to retire can make a significant difference to your final balance – but the sooner you start, the more time it has to compound. Maximising your contributions may also mean you pay less tax and help you reduce your taxable income.
If you’re saving for a home, this may be a good time to think about taking advantage of the First Home Super Saver (FHSS) scheme, which allows you to use some of your personal super contributions to help you buy your first home. You can withdraw up to $15,000 of your voluntary contributions from any one financial year, up to a total of $50,000 across multiple years, plus associated earnings.
Limits apply to the amounts you can contribute to your super each financial year. From 1 July 2024, the concessional contributions cap increased from $27,500 to $30,000, while the non-concessional contributions cap increased from $110,000 to $120,000.
Concessional and non-concessional contributions explained
You have some different options for contributing extra to your super and which one you choose really depends on your income and situation. Contributions to your super fund can be made from income that has:
- Not yet been taxed (‘before tax’ contributions) – which are concessional contributions
- Already been taxed (‘after tax’ contributions) – which are non-concessional contributions.
You may wish to set up a salary sacrifice arrangement with your employer, which is considered a concessional contribution. Salary sacrifice means you pay some of your salary, before tax is taken out, straight into your super (this is separate from the compulsory superannuation guarantee contribution paid by your employer on your behalf).
This effectively reduces your taxable income, meaning you pay less tax on your income. These concessional contributions are taxed in the super fund at a rate of 15%, which is less than most people’s marginal tax rate. The salary sacrifice option will work for you if your income is high enough that you’re paying more than 15% tax on your overall income, and you won’t miss the money out of your pay.
If you’re a low-income earner, you may find that non-concessional contributions are the better option. You can pay an amount into your super from your after-tax income or savings. You can do this at any time as a regular transfer or a one-off payment from your bank account.
Adding to your super fund when you have some extra cash on hand means you could have more savings to retire with. And, because you’ve already paid tax on your income, after-tax contributions are not usually taxed again when you deposit them into your super account.
You may also be able to claim a tax deduction on these contributions, to reduce the amount of income tax you pay in a financial year. Or you could be eligible for a co-contribution from the government – which could mean even more in your account! You can find the details on the ATO’s website, along with lots of other information on the superannuation system.
You may even wish to support your spouse by contributing to their super. And if your partner is earning less than $40,000 a year, you may be able to claim a tax offset of up to 18% on the first $3,000 you pay into their account.
We’re here to help so if you’d like more information on making contributions, call our Member Services Team on 1300 300 820, Monday to Friday 8:30am to 5pm, or email memberservices@visionsuper.com.au.
*This information is general advice which does not take into account your personal financial objectives, situation or needs. Before making a decision about Vision Super, you should think about your financial requirements and consider the relevant Product Disclosure Statement and Target Market Determination. Issued by Vision Super Pty Ltd ABN 50 082 924 561 AFSL 225054.
