min read
· Posted on
September 26, 2022

What are voluntary super contributions?

Making voluntary super contributions might seem daunting, but future you will drink a mojito for current you.

What's the key learning?

Voluntary super contributions are contributions you make into your super fund because you want to, not because you’re forced to. These contributions are different from 10.5% employer contributions made as part of the super guarantee.

What are the benefits of voluntary super contributions?

Well, firstly, let’s acknowledge that it’s really hard to adopt habits today that are good for us in the long run…like saving money for a rainy day or depositing cash into our super. And it’s not really our fault - it’s called present bias and it’s a real thing!

So why would you give up a good thing today for something long into your future? Well, there are actually some very good reasons.

The government incentivises us to make voluntary super contributions for our future by offering some JUICY tax benefits. 

1. Pre-tax contributions 

You can make a voluntary contribution to your super fund pre-tax, which is called a concessional contribution or salary sacrifice.

This is an arrangement you have with your employer to forgo some of your pre-tax salary and pour that cash into your super. 

Here’s how it works: Let’s say you’re earning a pre-tax salary of $5,000 per month. If you ask your employer to deposit $500 per month of your salary into your super fund before tax, you’ll only pay 15% tax on these contributions. Kaching!

And then, you’ll pay your marginal tax rate (say…32.5%) on the remaining $4,500 salary - this means you could save 17.5% of tax. Of course, it means that you won’t be able to access that money either. 

But there is a catch: you can only salary sacrifice up to $27,500 per financial year - and that total includes employer contributions too.

2. After-tax contributions

You can also make a voluntary super contribution after-tax, called a non-concessional contribution. These are contributions you make using your after-tax salary - aka, whatever’s in your bank account.

That means you’ve already paid your marginal tax rate on this money (which could be up to 45c for each dollar).

So you may be thinking, what is the benefit of after-tax contributions? Well, it’s twofold.

Firstly, you’re storing money in your super fund which you won’t be able to access until you turn 65 or when you reach preservation age and retire. Think of it kinda like an indestructible piggy bank.

Secondly, any income generated in the super fund will only be taxed at 15% - as opposed to your marginal tax rate.

Most super funds let you do this via a simple direct debit - just log into your super account and click a little button!

You can make up to $110,000 worth of non-concessional contributions each year - not behd.

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