Superannuation is a crucial aspect of financial planning, especially when it comes to securing your future during retirement. To build a substantial retirement nest egg, it’s important to understand the various types of contributions that can be made to your superannuation fund.
In this blog post, we’ll delve into the two main categories of contributions: concessional and non-concessional contributions, and explore the nuances of each.
Concessional contributions, also known as before-tax contributions, are funds that are deposited into your superannuation account before income tax is deducted. There are two primary forms of concessional contributions:
1. Compulsory Employer Contributions: These are the mandatory contributions made by your employer, typically at a rate of 9.5% of your salary. These contributions form the backbone of your superannuation savings and ensure a stable financial future.
2. Voluntary Concessional Contributions: Under this category, you have the flexibility to contribute extra funds to your superannuation account through salary sacrifice arrangements. These contributions are made before income tax is applied and can lead to potential tax
Non-concessional contributions, or after-tax contributions, involve depositing funds into your superannuation account after your income tax has been deducted. Here are the key types of non-concessional contributions:
1. Personal Contributions: These voluntary contributions are made from your personal funds. They can be both concessional and non- concessional in nature. Depending on your financial goals and circumstances, you can choose to contribute funds that have already been taxed or those that will be taxed within your super fund.
2. Employer Contributions: While most employer contributions fall under the concessional category, it’s worth noting that some employers may choose to make non-concessional contributions on your behalf. This could be part of a remuneration package or other arrangements.
3. Salary Sacrifice: Similar to employer contributions, salary sacrifice involves making additional contributions to your superannuation by sacrificing a portion of your pre-tax salary. This strategy not only helps increase your super balance but also offers potential tax advantages.
Understanding Contribution Caps
Both concessional and non- concessional contributions have limits, known as caps, to ensure fairness and maintain the integrity of the superannuation system. The concessional contributions cap is set at $25,000 per annum, covering employer contributions and voluntary concessional contributions.
The non-concessional contributions cap stands at $100,000 per annum or up to $300,000 over three years using the bring-forward rule, depending on your circumstances.
Concessional contributions offer tax advantages through salary sacrifice and employer contributions, while non-concessional contributions provide flexibility by allowing after-tax deposits.
By making informed decisions and staying within the contribution caps, you can build a solid foundation for a financially secure retirement.
If you have any questions or need assistance, contact us today to tailor your superannuation strategy according to your unique goals and circumstances.