When it comes to contributing to your superannuation, several questions often arise: What exactly is a contribution? Why should I contribute? Who is eligible to contribute? When should contributions be made? Are there any risks involved? In this article, we aim to provide clarity on these questions and offer you a comprehensive overview of superannuation contributions.
What exactly is a contribution?
A contribution refers to anything of value that increases the capital of a superannuation fund. It can be made by various parties, including yourself as the owner of the superannuation, the government, or a third party such as your employer. For instance, if you are an employee, your employer is likely already making contributions to your superannuation account on your behalf; which from 1 July 2023 has increased to 11% of your base wage.
Why should I contribute?
Making voluntary contributions not only helps to boost your retirement savings but also allows you to capitalize on valuable tax benefits. By contributing to your superannuation, you can save on taxes, as super contributions are taxed at a maximum rate of 15%. These tax savings, when compounded over time, can significantly enhance your retirement planning strategy.
Who is eligible to contribute?
You can make voluntary contributions to your superannuation fund until the age of 75, subject to eligibility criteria. In early 2022, legislation removed the “work test” requirement for voluntary contributions for individuals under the age of 67. However, for members aged between 67 and 75 who wish to claim a tax deduction for their personal contribution, the work test is still required.
When should contributions be made?
The timing of the contribution is important when determining which financial year the contribution will be counted towards the relevant cap, and which financial year any tax deduction will be claimed. Furthermore, whether you make contributions pre-tax or post-tax can affect your overall retirement planning strategy. Considering these factors and seeking professional advice can help you optimize your superannuation contributions.
Are there any risks involved?
It’s important to be aware that if your capital is invested, there is potential exposure to general investment risks, such as capital fluctuations and market volatility. Moreover, increasing your superannuation contributions means that the funds are locked away until you become eligible to access them.
There are many factors that must be considered when seeking to make a superannuation contribution. It is highly recommended to consult with your financial adviser to determine your eligibility, understand the relevant contribution caps, decide on the timing of contributions, and develop a customized retirement planning strategy. Feel free to contact one of your valuable advisers here at Crest to discuss the above and how it relates to you.