Few SMSF trustees are taking advantage of the ability to make personal deductible contributions to their super fund because they remain unaware of the change in legislation allowing them to do so.
“When we speak to people they’re still very surprised that they can do that, that is, they can put in contributions as an employee and they don’t have to have the employer put those contributions in for them,” HLB Mann Judd Sydney personal wealth management partner Michael Hutton said.
Under the current rules, individuals can make personal superannuation contributions from their after-tax income and then claim a tax deduction at the end of the financial year.
“The point is from this financial year you don’t need to do salary sacrifice at all now. That’s the big change,” HLB Mann Judd Sydney wealth management partner Jonathan Philpot said.
“So if you now make a personal contribution into your super fund, you can claim up to the $25,000 concessional limit.
“Everyone has the 9.5 per cent SG (superannuation guarantee) contributions that are going in, so that’s forming part of that $25,000 limit, but whatever the difference is between those two you can then claim as a personal deduction.
“So if the SG contributions end up being $15,000 for the year, that allows you up to $10,000 to put in personally and claim that tax deduction.”
Philpot said the new rule provides a more convenient way for an individual to boost their retirement savings balance, making the $1.6 million total super balance limit more of a reality.
“The key is to not rely on the minimum superannuation guarantee contribution, but to seek ways to increase contributions,” he said.
“Now that a tax deduction is available for additional contributions, locking money away in superannuation until retirement has become more palatable for many investors.
“It is achievable, even for mid-income Australians, if they have a disciplined savings plan and take advantage of the various superannuation tax incentives available to them.
“Starting as early as possible will make a large difference to retirement savings.”
To illustrate his point, he used the example of a 40-year-old with SMSF assets of $100,000.
In this case, assuming a 5 per cent real rate of return, the individual could accumulate a superannuation balance of $1.3 million by age 65 if they maximised their concessional contributions of $25,000 a year.
