What types of Super Contributions are there and how much can you contribute?
There are many benefits that make superannuation a great way to save for your retirement – but how do you get money into super and much can you actually contribute?
What are the main contribution types?
There are two main types of contributions into superannuation – Concessional and Non-Concessional.
Concessional contributions are also known as before-tax or pre-tax contributions into your superannuation. If you are an employee, these are contributed through your employer and can be made up of a combination of the Superannuation Guarantee (SG) along with contributions made through a Salary Sacrifice arrangement. If you are self-employed, these are contributions made where you intend to claim a tax deduction.
Non-Concessional contributions are also known as after-tax or post-tax contributions into your superannuation. These are usually contributed by yourself using your own personal funds.
How much can I contribute into my superannuation?
The government has placed limits, also known as a ‘Cap’, on how much you can contribute to your superannuation in each financial year. The before-tax Cap for everyone is currently $25,000 p.a. and the after-tax Cap is currently $100,000 p.a.
Super fact: It is possible to contribute more than the after-tax Cap in any one year, up to a maximum of $300,000 which represents three years’ worth of contributions. This is known as the ‘Bring Forward Rule’. For example, you’re approaching retirement and you want to increase your superannuation balance and you downsize your family home, the proceeds from the sale can be contributed into your superannuation using the ‘Bring Forward Rule’.
3 Questions to ask your Super Fund
For most people, outside of the family home, their super balance is the largest individual asset they have. So, how do you make sure your super fund is working to grow this great asset of yours? Ask your super fund these 3 questions to see how they are managing your money;
1. What is the investment option for my super account and what my level of risk?
Most people don’t know how their super is invested. They’ve just “ticked a box” or were given the default option and may be taking unnecessary investment risks with their superannuation. Your super fund will be able to explain the level of investment risk that your super is exposed to and if the expected returns will meet your retirement needs.
2. What will happen to my superannuation balance when the next market drop occurs?
Generally speaking, your superannuation balance will reduce depending on the amount of investment risk you are exposed to. During a market drop the value of the underlying growth investments in your super fund will decrease and will cause your super balance to drop. During times of market turmoil, such as the Global Financial Crisis (GFC), many super balances dropped in a really big way. People didn’t like that kind of experience – especially if they were approaching retirement.
3. What processes do you have in place so that my super balance can survive the next major market drop?
Large market drops can take years for your super to recover from. Avoiding, or at least minimising, the impact of a major market drop will keep your super moving forward. But this is easier said than done as most people have a “set & forget” approach to the way their super is managed. It’s also good to know that a market drop is not all doom and gloom – it’s a great time for your super fund to buy investments at lower prices and then your super balance can ride the wave of recovery back up.
If you don’t have confidence in how your super fund is managing your super you do have options available to you. Having your super proactively managed can give you a significant advantage in growing your super over time and there are people here to help you. Contact us for a free initial appointment with one of our Superannuation Specialists.