What is a catch-up contribution?
Super contribution caps used to be use it or lose it. Now you can make up contributions from past years if you didn't use all of your cap.
🤔 Am I eligible to make one?
1. If your superannuation balance was less than $500,000 on 30 June 2024 AND
2. You have 'unused concessional cap amounts' from the previous 5 years AND
3. You have used the whole of this years $30,000 cap
If you answered yes to all three questions then YES you are eligible.
❓Should I make one? Only your financial adviser can tell you that, but here are some things to consider...
- Are you in a high tax bracket?
- Have you made a capital gain this financial year?
- Do you like tax deductions?
- Is your balance nearing $500,000 and this could be your last opportunity?
- Do you like growing your assets?
- Can you say goodbye to this money until you retire?
Boost Your Super with Government Co-Contributions
Did you know the Australian Government chips in to help grow your super if you're eligible? 🙌 If your income is below $45,400, you could receive up to $500 FREE into your super when you make personal contributions!
💡 Here’s how it works:
✅ You contribute up to $1,000 to your super from after-tax income.
✅ The government matches up to 50 cents per dollar (max $500).
✅ No catch—just extra retirement savings!
🌟 Why take advantage?
Free money! Who doesn’t love extra cash in their retirement fund?
📌 Key Reminder: Contributions must be made by June 30 to qualify for this year!
The Magic of Compound Interest
There is no way to go back in time but imagine the results if you started investing today!
Our friends at Vanguard have put together a short video to explain how interest and earnings compound astronomically over time.
Their example in the video had an initial contribution of $10,000 plus monthly contributions of $500 (a total of $190,000 over 30 years) which accumulated to more than $880,000 when invested in the Australian stock market.
That is the magic of compounding.
There is nothing more certain than Death & Taxes
Wait a minute, there is tax on my super when I die? WTF?
Whilst you are able to make superannuation withdrawals over age 60 tax free, did you know that tax may apply if certain beneficiaries inherit your funds after your death?
Superannuation contains both taxable and tax free components. Taxable components accrue through employer and salary sacrificed contributions (concessional). Tax free components accrue through after tax contributions (non-concessional).
'Dependants' under tax law which commonly include a spouse or child under 18 years old can receive all of your super tax free.
However, adult children may be subject to 17% tax on the taxable component.
How can you avoid this 'inheritance tax'?
You can recycle your super from taxable to tax free components through a 'cash out, re-contribution' strategy.
How does it work?
1. When you are eligible to do so, you withdraw a lump sum from super. Withdrawals from super draw proportionately from your taxable and tax free components. Withdrawals from super at age 60 are tax free to you.
2. Re-contribute the funds to super as a non-concessional contribution. Keep in mind the contribution caps.
This strategy has recently helped one of my clients to convert their super from majority taxable to majority tax free. Meaning a potential tax saving for their children when inheriting the funds down the track of up to $130,000!
Super is about to get a bit more super!
Superannuation Guarantee is going up but that doesn’t mean you should stop your own contributions.
From 1 July 2024 the standard super contribution rate is legislated to increase to a minimum of 11.50%. A win for all Australians who will build their retirement savings faster.
Your employer may choose to voluntarily pay a higher percentage.
Previously, QLD government and health employees were required to make additional "voluntary" 'standard member contributions' of 2-5%. This qualified employees to receive higher employer contributions up to 12.75% (or 18% for police officers).
You no longer need to make your own contribution to receive the higher employer contribution. But here is why I think you should continue to make your own contributions.
An example of a 30 year old who earns $100,000/year, has a super account worth $100,000 invested in a fund earning 7.5%p.a. on average would retire with a super balance at 65 of $766,448 if they cancelled their voluntary contributions. If they continued to make salary sacrifice contributions of 5%, they would retire with $990,412. A difference of $223,964!
I can’t wait to buy my first home
Lets talk first home super saver scheme...
It now pays a rate of return of 5.70% (calculated as the 90 day bank bill rate + 3%). Higher than any online saver account (4.75%) or 12 month term deposit (4.10%) on offer. Sounds like a low risk yet 'high' return way to save for your first home.
So far $385 million has been released to 29,511 individuals, an average of just over $13,000 each. With the possible withdrawal amount recently increased to $50,000, why hasn't the uptake been higher?
How much can you REALLY withdraw? It depends on how many contributions you have made yourself, not employer contributions. Any salary sacrifice, personal deductible contributions or contributions you've made but didn't claim a tax deduction on (non-concessional) are available for withdrawal plus the deemed interest these contributions have made, regardless of how much your superfund has actually made during the period.
With many superfunds down over the past few years, an interesting quirk of the system could soon eventuate. You are able to withdraw the interest deemed at 5.70% but your superfund return may have been negative for the year, meaning you will be dipping into other capital (probably from employer contributions or past earnings) to fund the interest component of your withdrawal. When designed, this wasn't considered because "super generally goes up over time".
There is also slight uncertainty in funds being released or being locked away until retirement. The design of the program makes it difficult to understand and comply with.
The sole purpose of super is to fund retirement, not house purchases. There is always the possibility that the scheme could be shut down as the government legislates the purpose of super and minimises the opportunities to withdraw. However, the important part of the scheme is that you are only able to withdraw contributions YOU put in. Contributions that without the scheme would not have happened in the first place.
Not everything is made equal in the world of wealth
With international Women's day coming up month, it is important to explore the different financial challenges men and women face.
The gender pay gap, need for flexible working conditions, maternity leave and a longer life expectancy just to name a few.
The latest research from Netwealth reports that more than 50% of Australian women surveyed worry about money on a daily or weekly basis. (Only 37% of men surveyed felt the same).
With cost of living rising and rate hike after rate hike, I'm not surprised that it isn't 100%.
Women also feel less confident in making their own investment decisions, have lower financial literacy and a more conservative risk profile. I've seen this with my clients for years with one partner often taking control of the family's finances and the other taking the back seat.
Financial stress can severely impact physical & mental health, family or social life and work satisfaction.
Quality financial advice can help both men and women improve their financial position and reduce their mental strain by knowing that their future is being looked after.
Thanks Netwealth for your research. See the link for access to their latest report: Women as the new face of wealth - Advisable Australian 2023 (netwealth.com.au)
Stamp duty is a demon
Stamp duty can be a big hurdle for first home buyers to get into the market adding costs of $30,850 in QLD, $40,305 in NSW and $55,000 in VIC for a $1,000,000 first home purchase.
I know each state has their own scheme that allows first home buyers to receive a stamp duty exemption but the thresholds are just too low for anyone to take advantage of them.
The average age of a first home buyer in Australia is now 36. Show me a family home that can be purchased in a capital city for less than $500,000 in QLD, $800,000 in NSW and $600,000 in VIC!
Stamp duty also prohibits retirees from downsizing to a property that’s more appropriate to their needs than a 5 bedroom double story family home. This in turn reduces the number of houses on the market for purchase by first home buyers.
Are you for or against scrapping stamp duty in favour of a smaller, annual land tax?
Finding Financial Bliss: Reimagining Debt and Investment Strategies for Long-Term Happiness
Is it time to re-evaluate your debt & investment strategy?
For many years the low interest rate environment has incentivised us to invest or contribute to super over repaying our mortgages.
With an opportunity cost lower than 2% for a brief moment of time and high earnings in investments (circa 10%+), who could blame you? The math’s of the situation was clear. Not to mention the extra benefit of a tax deduction for contributions to super on top of the difference in interest rates.
Now the tables have turned, and the impact is twofold. A rapid increase in the official cash rate has increased our cost of borrowing on top of a share market slump. So, what can we do about it?
Firstly, check your mortgage interest rate and call your bank to ask for a better deal. If you don’t like their offer, you can refinance.
Next consider if there is any way you can reduce your debt by shuffling cash around or by (shock horror) cutting back on your expenses. No more avocado on toast! Kidding.
Then think about your investments and if they still align to your long-term goals. Investment earnings may not be good this year but often perform in the long run.
Lastly, calculate the after-tax profit/loss of each scenario. It is important to compare like with like.