Superannuation arrangements are usually necessary for any individual who is either nearing or has attained retirement period. The purpose of having a super is to be insulated at the time when you have retired and are not receiving any substantial income. When taking a super, there are a couple of things most people are not aware of.
Things you need to be aware of if you have a super
If you’re self-employed, don’t ignore your super
Although contributing super payments is not a must for individuals who are self-employed, you are bound to regret in the future for failing to do so. Plus, if you choose to contribute earlier, you might get a tax deduction so that you just pay a 15% tax.
Rules govern when you can access your super
You have to meet some requirements to be able to access your super. When you want to gain access and even use your superannuation fund, the major two things to consider are the “preservation age” and appropriate “conditions of release”.
The preservation age starts at 55 for those born before July 1, 1960, then, gradually rises to 60 for those born after June 1964. Permanently retirement from the workforce is the main condition of release for those who are under 60.
There is a high chance that you have left your previous employer when you are aged between 60 and 65. Even if you want to stay with your previous or current employer after you exceed the age of 65, there is permission to withdraw your super.
You are permitted to control your own super
To achieve this, you have to ensure that money is not just being put the default investment option or “balanced” option. You need to determine where your money is being invested by selecting an investment option that is relevant to your life and suits your needs. In that way, you may choose whether to remain more conservative or put more in growth.
Rather than allowing the fund manager to do so on your behalf, you can just choose individual shares to invest in if your superannuation funds have a member-direct option. However, not everyone can enjoy such a facility.
You can as well decide to set up an SMSF. In most cases it is usually a few people, often a family, which set up a self-managed super fund (SMSF). The fund usually allows a maximum of four members and the tax office regulates it.
Even if an SMSF may allow you more control, you have to properly run the fund and comply with the set rules.
You gain tax benefits when you add money to super
One of the most tax-effective ways through which you can add money to your super fund is Salary sacrificing. In this arrangement, you ask your employer to chop off part of your pre-tax salary and channel it directly into the super.
A 15% rate often lower than your marginal tax rate will be used to tax the contributions when they reach into the fund. The tax deduction is usually claimable for any after-tax super contribution. On July 1, 2017, ATO scrapped claimable deductions on less than 10% of your income of wages and salary.
To be eligible if you are aged between 65 and 74, you will have to carry out a work test. Any contribution you claim a deduction will form part of the $25,000 concessional contributions cap but will not exceed the non-concessional cap.
The amount you can put on into the super is limited
The contributions one can make into the super are categorized into two: concessional and non-concessional – and there are limits to each.
As pre-tax payments, Concessional contributions are usually taxed at 15% when they go into the super. An individual can make concessional contributions of up to $25,000.
In order not to go beyond the set cap, calculate the salary sacrifice allocation knowing that the limit includes the employer’s 9.5% compulsory contributions.
As they go into the fund, Non-concessional contributions are not taxed since they are composed of money already taxed. If your super balance is less than $1.6 million, the maximum you can make is either $100,000 annually or $300,000 over a three-year period.
The payment is usually made on 30 June of the previous financial year and you can pay a penalty tax rate if your contributions exceed that cap.
More perks for a lower income earner
The Australian government usually gives a low-income superannuation tax offset (LISTO) up to about $500 for individuals who earn less than $37,000. To calculate LISTO, 15% is charged on the before-tax concessional super contributions you or either your employer make.
You don’t necessarily have to apply for it as the tax office will take the provided super fund information or tax return to work out your eligibility.
The government can also come in to top up the amount of your super. For those who deposit an after-tax contribution to the super fund, the government can add 50¢ for every $1 contributed until it reaches a cap of $500.
However, you should be earning below $36,813 and making an after-tax contribution of around $1000 to benefit from the maximum $500 co-contribution. After the earnings exceed that amount, the co-contribution rate will continuously diminish until it fizzles out when the income gets to $51,813.
Your super is accessible early under extreme circumstances
On compassionate grounds, early access to part of your superannuation can be given to you. There are a couple of urgent things that can crop up before your super matures that can make you be allowed to withdraw from your super.
For instance, a medication issue might where you have to pay for your dental or any other treatment or even cover the transport for the treatment. You may also need to deal with a mortgage issue where you need funds to prevent your lender from auctioning your home because of unpaid mortgage or for modification of your home or car to cater for your needs.
The funds can at times be required in extreme situations where you require palliative care or your dependant has a terminal medical condition or even to pay for death, funeral or burial expenses associated with your dependant.
You will have to go to the Department of Human Services myGov online account if you intend to apply for any of the above reasons.
Your spouse can as well make contributions to your super
If you currently earn below $37,000 your spouse can come in and make of up to $3000 contribution into your super account – and be rewarded an 18% tax offset for contributions of up to $540.
Until it completely fizzles out when the income your spouse reaches $40,000, the tax offset will gradually decline as income rises.
The ATO recognizes a spouse as a person who is married to you and who you live with as a husband or wife – even if you are not legally married. Any individual you married but lives away from you on a permanent basis is not recognized.