Doing the right thing for your superannuation also means knowing what not to do. It can be easy to get caught out if you are not aware of specific rules and restrictions. Here are 4 tips to help you make the most of super contributions.
1. Do avoid the 'traps of caps'
Contributions over the caps are taxed at 46.5% for excessive non-concessional contributions. Concessional contributions are taxed at 31.5%. This is in addition to the 15% contributions tax
that has already been paid by the super fund.
Even if you exceed the caps by making an inadvertent error, you will still generally have to pay the higher rate of tax. If you think this can’t happen to you, 65,000 people breached their concessional cap in the 2009-10 financial year, up from 28,000 people the previous year.1
Ensure you keep records of your super contributions so that you don’t risk exceeding the caps.
Contribution caps for 2012-13 and 2013-14
2. Do consider making Non-Lapsing Death Nominations
Don’t assume your superannuation will always go to the beneficiaries nominated in your will. In fact, this may only be the case if your estate receives your super death benefit. To ensure your super fund pays according to your wishes, you may be able to make a Binding Death Benefit Nomination or a Non-Lapsing Death Benefit Nomination, which is also binding.
You should also consider the tax implications, bearing in mind that for tax purposes lump sum payments to dependants are tax-free, but taxable components paid to non-dependants will be subject to tax.
3. Do find out how and when you can access your super
Preservation rules mean you can’t access your super until you meet a condition of release, including:
• retirement on or after preservation age (see table below)
• turning 65
• reaching preservation age and commencing a transition-to-retirement pension
• suffering from a terminal medical condition or being permanently incapacitated
• severe financial hardship as assessed by the trustee or on compassionate grounds as assessed by Centrelink.
The amount you can access may be restricted and subject to conditions.
4. Do review your long-term super strategies regularly
It’s important to regularly review your super investment strategy.
Factors such as the effects of inflation, tax and fees on your superannuation account and diversification may change overtime. Spreading your super investments over different asset classes may offer better returns and reduce your investment risk.
While a lower risk strategy may be the safest option, you could be limiting the potential growth of your super balance, particularly if you have plenty of time before you plan to retire.
1 Commonwealth of Australia, Parliamentary Debates, Questions on Notice, Superannuation (Question No 367), Senate, 3 March 2011, (Senator Nick Sherry, Minister representing the Assistant Treasurer, The Hon Bill Shorten MP), Hansard (Proof), pp 102-6, viewed 11 March 2011.
Source: Colonial First State, July 2013