Is an Extra Superannuation Contribution a Great Idea?


Superannuation is one of the best and most tax effective ways to build a retirement nest egg. Whether you are an employee earning a salary or a wage, self employed or earning an income from your investment portfolio, contributing to your super will help you save a good portion of your income while paying less income tax in the process.

When it comes to super contributions, most people will simply opt for the salary sacrifice contributions or the regular super contributions made by the employer on their behalf. On top of these, you can also reduce your tax obligations by making a personal voluntary contribution into your superannuation. These contributions, too, attract a concessional tax rate of 15% which is way below what you would pay at your marginal tax rate if your income is more than $37,000.

Why Contribute More Money into Your Super Fund?

The most obvious reason is that the more money that you have in your superannuation, the more comfortable your retirement will be. You won’t be young and employable forever. At some point in time, you will be too old or too weak to work and you will rely on your superannuation distributions to keep going. You need superannuation that can last for you for up to 30 years when you will no longer be working.

The second reason for putting more money into your superannuation is that it affords you an opportunity to accrue lots of tax savings since your superannuation contributions are taxed at a flat rate of 15%.

You don’t have to pay more taxes on your income when you can save it for retirement and still enjoy a handsome tax concession. You can talk to a professional accounting firm Melbourne practice that can advise you accordingly on the right amount that you can add to your super fund within reasonable limits.

The superannuation rules are also tightening every year so it is generally prudent to get in the game and save as much money as possible before the government tightens the screws even further. The most biting rules will be those to do with contribution limits.

Then there is the fixed cost of management of the super fund to put into consideration. This mostly applies if you are planning to put money into a self-managed superannuation fund (SMSF). Generally, the more money that you have in super fund, the more that the cost of running your own super fund will be justifiable. If you are sacrificing and putting money into a superannuation fund, you can always make the most of the fixed costs of management for these funds.

By making regular contributions to your superannuation, you can also be eligible for tax deductions for the contributions for as long as you are aged below 75. Everyone is eligible for these deductions whether they are self employed, employed or earning from their investment portfolio or real estate.

Ultimately, the decision to put more money into a super fund depends on your life’s goals. When do you plan to retire? What kind of lifestyle do you want to live after you have retired? Usually, people who have enough saved in superannuation have the freedom to decide when to retire and pursue other life’s endeavours.

However circumstances differ. Sit down with your accountant or financial advisor and decide what will be the best course for you with regard to your super contributions, taking into account your current income level and future goals.

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