Superannuation is a great vehicle for retirement savings with many tax effective advantages. However with annual limits being reduced again it is important to ensure you aren’t paying too much into your super.
In this tax year 2012-2013 the concessional superannuation contributions limit has been reduced from last year for those over age 50. This means that the limit for concessional superannuationcontributions for everyone including those older than 50 years of age is $25 000 instead of $50, 000 previously allowed for those older than 50 years. Concessional superannuation contributions include employer contributions (even those contribution made under salary sacrificing) and personal contributions claimed as a tax deduction by a self employed person.
This may still sound like a lot of money to contribute but you need to remember that it is not only the amount you salary sacrifice but also the 9% compulsory contribution from your employer. Therefore it is important to look over any salary sacrifice agreements from last year and take into account any pay rises. The penalty for going over the limit is that the excess is taxed at 31.5% after the normal 15% tax your fund pays.
Non concessional contributions are those that you make out of your own after tax dollars. The non concessional contributions limit is $150,000 per year if under 75 years old. If the person is under 65 they can contribute up to $450,000 in a year but this is then averaged out over 3 years. Contributing to your super fund gets a tax concession making the investment inside super more effective than outside super.
Another benefit on non concessional contributions is that you may be eligible to receive a government co-contribution. The government would give you 50c for every $1 you contribute up to a maximum of $500 if you are eligible. The ATO pays the co-contribution automatically into your fund, based on your tax return and information from your fund.
The new limits on superannuation contributions mean that individuals have the option of tailoring their contributions to super throughout their working lives and enjoying the benefits of compounding returns. However with the limits in place this means that more monitoring of superannuation needs to be undertaken with an advisor to ensure that the full benefits of contributions can be achieved.
Article Dated – 3rd May 2010 Written by : John Duncan, True Financial