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Making super contributions to build a nest egg for your retirement sounds easy, but working out the best mix of concessional and non-concessional contributions for your particular situation can be tough.
Luckily, there are some general principles you can use when working out your personal contribution mix.
To give you some ideas, we’ve also created a few case studies of typical Aussies of different ages, income levels and work situations. These are designed to illustrate the impact of the different strategies you can use, rather than providing specific examples you should follow.
As the rules around the super system change constantly, your contribution mix needs to be regularly reassessed to ensure you are still making the right choices for your current financial situation.
What types of super contributions can I make?
Before trying to work out your best mix of super contributions, here’s a quick reminder of the main types of contributions, plus some links to our articles explaining things in more detail if you need to refresh your memory:
1. Concessional (before-tax) contributions
These contributions are made from your income before you pay income tax.
There is a 15% contributions tax payable on these contributions when they are added to your super account, which for people on medium or high incomes, is less than their marginal income tax rate. The total amount of your concessional contributions must not exceed the annual general cap or limit ($27,500 in 2023–24).
The main types of concessional contributions are:
- Your employer’s Super Guarantee (SG) contributions
- Award and additional employer contributions
- Salary-sacrifice contributions
- Personal contributions for which you claim a tax deduction.
2. Non-concessional (after-tax) contributions
These super contributions are made from your income after you pay income tax.
There is no 15% contributions tax payable on these contributions as you have already paid tax on the money. Your total contributions must not exceed the annual general non-concessional contributions cap ($110,000 in 2023–24).
The main types of non-concessional contributions are:
- Personal contributions from your take-home pay
- Spouse contributions.
3. Government contributions into your super account
These contributions are made by the government directly into your super account if you meet the eligibility criteria and they can provide a useful boost to your retirement savings (see following case studies):
- Co-contributions
- Low income super tax offset (LISTO)
How do I work out my best mix of super contributions?
Working out the best mix of super contributions is a very personal thing and it will differ depending on your personal situation, finances and retirement goals. Despite this, there are some general principles you can follow when selecting your contribution mix. You could follow these steps:
Step 1. Work out if you are eligible for a government co-contribution
Under the rules of the co-contribution scheme, if you are eligible, you will receive a payment of up to $500 when you make personal voluntary (after-tax) super contributions into your super account.
Step 2. Make voluntary super contributions to receive a co-contribution
If you meet all the eligibility rules for a co-contribution, consider contributing enough from your after-tax salary or wages to maximise the amount of co-contribution you receive.
Step 3. Make salary-sacrifice contributions into your super account
After maxing out your co-contribution eligibility, consider setting up a salary-sacrifice arrangement with your employer to make concessional (before-tax) contributions into your super account.
Your salary-sacrifice contributions should not exceed your annual concessional contributions cap, nor should they leave you with insufficient income to cover your normal living expenses.
Step 4. Consider a personal contribution for which you claim a tax deduction
If you are self-employed or your employer is unwilling to set up a salary-sacrifice arrangement with you, a good alternative can be to make a personal contribution into your super account and then claim a tax deduction in your income tax return.
Both salary-sacrifice and tax-deductible personal super contributions are classed as concessional (before-tax) contributions. Your annual cap for these types of contributions is $27,500 (2023–24). The two strategies have the same tax outcome but work slightly differently. We have compared the two strategies here.
Step 5. Consider voluntary personal (after-tax) contributions for any additional amounts
If further concessional contributions would not be a tax advantage for you due to low income or you can’t contribute more due to the concessional cap, but you have income remaining you would like to contribute to super, consider making a personal non-concessional contribution from your after-tax income. The annual general contributions cap for these types of contributions is currently $110,000 (in 2023–24).
Using the Moneysmart Super Contributions Optimiser calculator
As deciding the best contribution strategy can be tricky to work out, it may be worth using an online calculator.
One tool to try as a general guide is the Super Contributions Optimiser tool on the Moneysmart website. This calculator is free and can help point you in the right direction.
To use ASIC’s Super Contributions Optimiser, simply enter the necessary information about your age, income and super contributions. The calculator assumes your employer contributes to your super account the current minimum Superannuation Guarantee (SG) rate of your ordinary times earnings (OTE), but if your employer contributes more than the SG minimum, simply increase the percentage amount.
The calculator is regularly updated to reflect the annual taxation rates applying to your salary in the current financial year.
If you are self-employed, reduce your amount of employer contributions to 0% and enter your contributions amounts as additional voluntary or personal contributions.
Limitations of the ASIC calculator
It’s worth noting that any calculator has limitations. You will still need to do your homework before deciding on your personal contribution mix.
The ASIC calculator is very general and doesn’t take into account your particular financial circumstances and debts, or your lifestyle expenses and objectives. As these can vary significantly between individuals, you need to take these into consideration.
We have also noted the calculator occasionally recommends lower income individuals salary sacrifice below a tax-effective level of income.
In addition, the calculator doesn’t permit you to take into account that you may have carry forward concessional contributions available from a prior year.
Unfortunately, the contribution calculator doesn’t work for members of defined benefit super funds either, as these use fund-specific formulas to work out the super benefits for their members.
Many large super funds also provide contribution calculators for their members. Its worth looking around to find a calculator that is user friendly.
Case studies: How to mix and match your super contributions
The following case studies show how using a variety of super contributions can substantially boost the amount in your super account.
Obviously, using a different mix of contributions or a higher/lower contribution amount from your salary will give different results. In many cases, making certain types of super contributions (such as using a salary-sacrifice arrangement) can also lower your annual tax bill.
Pay for Min ($ per year)
With super contributions | No super contributions | |
---|---|---|
Gross salary | $27,000 | $27,000 |
Less salary sacrifice | -$2,230 | $0 |
Less income tax + Medicare levy | -$548.30 | -$1,171.60 |
Take-home pay | $24,221.70 | $25,828.40 |
Less after-tax super contributions | -$1,000 | $0 |
Net pay | $23,221.70 | $25,828.40 |
Min’s super ($ per year)
With super contributions | No super contributions | |
---|---|---|
Employer contributions | $2,970 | $2,970 |
Before-tax contributions (salary sacrifice) | $2,230 | $0 |
After-tax contributions | $1,000 | $0 |
Government co-contribution | $500 | $0 |
Low income super tax offset | $500 | $445.50 |
Less contributions tax | -$780 | -$445.50 |
Net contributions | $6,420 | $2,970 |
Source: Author using 2023–24 income tax rates
Pay for Jason and Leigh-Anne ($ per year)
Jason and Leigh-Anne’s super ($ per year)
With super contributions | No super contributions | |||
---|---|---|---|---|
Jason | Leigh-Anne | Combined | Combined | |
Employer contributions | $7,920 | $3,850 | $11,770 | $11,770 |
Before-tax contributions (salary sacrifice) | $11,310 | $0 | $11,310 | $0 |
After-tax contributions | $0 | $1,040 | $1,040 | $0 |
Government co-contribution | $0 | $500 | $500 | $0 |
Low income super contribution | $0 | $500 | $500 | $500 |
Less contributions tax | -$2,884.50 | -$577.50 | -$3,462 | -$1,765.50 |
Net contributions | $16,345.50 | $5,312.50 | $21,658 | $10,504.50 |
Pay for Nasir ($ per year)
With super contributions | No super contributions | |
---|---|---|
Gross salary | $192,000 | $192,000 |
Less deductible contribution | -$80,000 | $0 |
Less income tax + Medicare levy | -$29,107 | -$60,907 |
Take-home pay | $82,893 | $131,093 |
Nasir’s super ($ per year)
With super contributions | No super contributions | |
---|---|---|
Before-tax contributions (personal deductible) | $80,000 | $0 |
Less contributions tax | -$12,000 | -$0 |
Net contributions | $68,000 | $0 |
These case studies are presented as general information only and are solely intended to give you ideas on strategies you could consider when making additional super contributions. They do not take into account all aspects of someone’s financial or other situation, and should not be construed as personal advice.
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