Superannuation Contributions to reduce your income tax before 30 June 2024

Utilising smart financial planning strategies before 30th June every year often includes making superannuation contributions to secure a comfortable retirement while accessing a tax deduction.

Let’s explore a case study featuring John, a full-time worker, who strategically leverages concessional contributions to build up his retirement savings while accessing personal tax benefits.

Background

John is aged 50 and works full-time as an employee where he earns an annual income of $80,000. Like many Australians, he understands the importance of building a robust retirement nest egg through superannuation.

Employer Contributions

John’s employer contributes $8,800 to his superannuation fund during the 2023/24 income year, in line with the current mandatory superannuation guarantee payments (11% of ordinary time earnings).

Personal Contribution

Recognising the potential tax advantages of additional contributions, John decides to bolster his retirement savings further. He makes a personal contribution of $18,700 from his bank account, aiming to reach the maximum allowable concessional contribution limit of $27,500. John ensures that he lodges a valid Notice of Intent From within the required timeframe and receives acknowledgement by his super fund.

Tax savings

John’s strategic decision to contribute $18,700 from his personal funds yields substantial tax savings. By reducing his taxable income, he effectively lowers his tax liability. By making the personal deductible contribution, John will receive a personal tax saving as $6,451.  However, the $18,700 contribution will be taxed at 15% by his super fund, which results in tax of $2,805 and as a result his overall tax saving is $3646.

Result and benefits

Through astute financial planning and utilising his annual cap for concessional contributions, John not only builds up his retirement savings but also enjoys significant tax benefits. By fully utilising the concessional contributions cap, he can improve his financial position for the future, ensuring a more comfortable retirement. To highlight the power of this strategy, if John followed this strategy for 10 years this would provide him approximately $36,500 in tax savings and result in him having approximately $210,000 more in superannuation at age 60. We have assumed John’s current superannuation balance is $200,000 and he will earn an average rate of return of 5% per annum on his super.

Conclusion

John’s case exemplifies the importance of proactive retirement planning and leveraging concessional contributions effectively. By understanding the tax implications and capitalising on available opportunities, individuals like John can build robust retirement portfolios while accessing tax concessions. As you navigate your financial journey, making personal deductible contributions to superannuation remains a cornerstone of prudent financial planning, offering both long-term benefits and immediate tax savings.

Making Personal Deductible Contributions or Salary Sacrifice Contributions to super can be a tax-effective strategy to increase superannuation funds and save you money on tax. Concessional contributions are taxed within superannuation at a rate of up to 15%. If you are a high-income earner, additional tax of 15% may also be applied to concessional contributions.

Investment earnings are taxed at up to 15% within superannuation.

However, amounts contributed to superannuation will be preserved until certain requirements are met.

The purpose of this website is to provide general information only and the contents of this website do not purport to provide personal financial advice. Denaro Wealth strongly recommends that investors consult a financial adviser prior to making any investment decision. The contents of the Denaro Wealth website does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this website is given in good faith and is believed to be accurate at the time of compilation.

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