Any excess concessional contributions will be added to your non-concessional contributions. This can have a snowball effect if you have already reached your non-concessional cap, resulting in additional tax to be paid on both your concessional and non-concessional contributions.
In the Federal Budget, two special measures were introduced to help ease the housing affordability crisis. The First Home Saver Scheme FHSS allows you to make voluntary concessional or non-concessional contributions to your super to save towards buying your first home. There is quite a bit of red tape around this measure so be sure to read the fine print.
This change is expected to start from 1 July but is not yet law. This is not a concessional or non-concessional contribution and does not count towards your contribution caps. In addition, it can only be used once, you must have owned the property for at least ten years, it is not tax deductible and it will count towards your eligibility for the Age Pension.
Need to know: From 1 July the government proposes reducing the age at which you can make a downsizer contribution from 65 to This is not yet law. A super fund is best imagined as a structure that holds your savings in a range of investments until you retire. You could hold the same portfolio of shares, property, bonds, cash and other investments inside a super fund or outside super in your own name or in some other structure such as a family trust.
These investments, whatever the ownership structure, earn income in the form of dividends, rent or interest and produce capital gains or losses when they are sold. The thing that sets super apart is its taxation status; despite constant government tinkering it is still the most tax-effective home for retirement savings. That and the length of time your savings are left to grow in super generally produce a better return on your money in the long run than you would earn if you invested in comparable investments outside super.
Capital gains on the sale of assets inside super are also taxed at concessional rates. If you held the same investment outside super for more than 12 months, you would pay tax at your marginal rate on half the capital gain, or an effective tax rate of up to These are the tax rates that apply to investment returns inside super during accumulation phase.
That is, while you are working and accumulating savings in super to be used in retirement. Once you start withdrawing your savings as a lump sum, income stream or a mixture of both, your super is said to be in retirement phase, previously known as pension phase.
You generally pay no tax on investment income or capital gains from super pensions, but there are exceptions. Previously they were tax free. However, these earnings are still exempt if you are over age Generally, you need to wait until you retire.
The only exceptions are in cases of financial hardship, disability, terminal illness or death. For more information, see SuperGuide article When can I access my super? All conditions of release explained. Otherwise, your preservation age will depend on when you were born. For Australians born before 1 July , preservation age was 55 but this is gradually increasing to 60 for younger age groups see table below.
When you reach your preservation age and retire you can withdraw your savings and accumulated earnings in a lump sum , as an income stream from a super pension , or a mix of the two. Withdrawals are usually tax free, but if you are younger than 60 there may be tax to pay. You can withdraw it all as one lump sum, or on a regular basis like a salary known as an account-based pension.
This has the added benefit of having your money continue to work for you as you go. The power of super really is in your hands, but a little advice never went astray. We love to give personalised advice and help Australians feel confident with their superannuation — give us a call to find out how we can help. Want to learn more? Public sector funds are usually open to government employees of the Commonwealth, state, or territory.
Corporate funds are typically only open to those who work for a specific company. And, finally, there are self-managed super funds that are managed by the individual. Keep in mind that if you do not make the choice yourself, your employer will make the decision for you.
However, you can change at any time by providing your employer with the details of the super fund that you prefer. Allocated pensions are basically a regular stream of retirement income that is paid to you by your super fund. It is a way for retired individuals to receive wages again, but through the super account, not an employer. It is considered a private account-based pension and it also works in conjunction with any Government age pension that you receive.
Downsizing can also impact on pension entitlements. Beyond the obvious benefit of receiving a regular income, allocated pensions also allow the remaining balance of your super to continue to grow. As with the options available during your work years, super funds allow you to make the choice about how your money is invested.
The amount of tax that you are required to pay on your super contributions depends on a number of factors, including how the contributions are made and how much is contributed each year.
No tax is paid on after-tax, or non-concessional, contributions, which include contributions you make from your after-tax income, contributions made by your spouse to your super fund, and other personal contributions that are not used as an income tax deduction.
There are limits on the amount of before-tax and after-tax contributions you make each year, and these may vary depending on the financial year and your age. If you contribute too much to your super, you may have to pay extra tax. Fees payable by product providers for referrals and Sponsorship or Promotion may vary between providers, website position, and revenue model.
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Where products are displayed in a comparison table, the display order is not influenced by commercial arrangements and the display sort order is disclosed at the top of the table. Sponsored or Promoted products are clearly disclosed as such on the website page.
They may appear in a number of areas of the website, such as in comparison tables, on hub pages, and in articles. The table position of the Sponsored or Promoted product does not indicate any ranking or rating by Canstar. Understanding how superannuation works could help you feel better prepared. What is superannuation? How does superannuation work? Do you need to have a super fund? When can you access your super? What are concessional and non-concessional super contributions? How much super do you need to retire comfortably?
Read more: Early access to super: Can I withdraw my super early? Concessional super contributions. Non-concessional super contributions. Related: A guide to superannuation splitting with your spouse. About the author:. Share this article. Related Top performing super funds on Canstar's database.
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