How Much Should You Contribute to Your Superannuation?

Your super is one of your most important assets when it comes to retirement planning. Early retirement planning can help to ensure you achieve your dream lifestyle and don’t have to stress about money in your golden years. 

Seeking superannuation advice from professionals can be really helpful if you wish to maximise your super contributions. 

A personal financial advisor may be able to let you know how much you can and should put into your superannuation each year to best prepare for your ideal retirement lifestyle. 

Keep in mind, superannuation regulations can change over time, so seeking help from superannuation advisors in the Central Coast can be an advantage.

However, before you consult a financial advisor, you may want to know some more information on what types of super contributions you can make to your super fund. 

Two Types of Contributions to Superannuation

1. Concessional Contributions

Concessional contributions are made by an employer or ones that you make before tax. If you choose to make voluntary concessional contributions, you will receive a tax deduction.

This category includes Personal Concessional contributions, Mandatory Employer Super Guarantee (SG) contributions, and Salary Sacrifice contributions. 

2. Non-Concessional Contributions

Non-concessional contributions are voluntary payments made to your super fund. 

Essentially, a non-concessional contribution is an after-tax contribution, usually paid from a personal bank account. In this category, there is no tax deduction as a contribution. 

Additionally, non-concessional contributions include spouse contributions – where you can transfer or roll over a portion of the contributions you recently made to your super account, to your spouse’s super account.

Similarities between Concessional and Non-Concessional Contributions

Keep in mind that concessional and non-concessional contributions have annual caps that limit how much you can contribute every financial year.

It’s also crucial to note that if you make combined contributions to multiple super funds, it will all count towards the relevant cap. 

This only applies, however, if you have more than one super fund. If that’s the case for you, it only denotes that the contribution limits do not apply per super fund but rather per person.

Difference Between Concessional and Non-Concessional Contributions

While we have already covered the fact that there are tax differences between concessional and non-concessional super contributions, there is also a difference in the amount you can contribute. 

Currently, there is a $27,500 concessional contribution cap for every person per financial year. 

However, there is an exemption to this standard that might be beneficial to you. 

  • A superannuation balance or combined balances less than $500,000 means you may be able to use the catch-up strategy for your unused concessional contributions. Doing so, can allow you to use up your unused caps from the previous years – for up to five years.

On the other hand, the cap for the non-concessional contributions is $110,000 per person for each financial year. 

This limit also has some exemptions that could be worthwhile in exploring. 

  • Contributors who are below 65 years old can utilise the carry-forward rule of the non-concessional contribution. This strategy allows you to bring forward up to an additional two years worth of the cap. 

This strategy only allows you to contribute up to $330,000 for the next three financial years at any time.

In other words, if you have only just started to make voluntary contributions to your superannuation, you may be able to add extra money to make up for other years that you didn’t choose to contribute. 

One of the most tax-effective ways to help you with your retirement planning is superannuation. If you are planning to make super contributions, it’s important to familiarise yourself with the different types of contributions and their limitations. 

It’s also good to note that personalised financial advice can help you make the right financial decisions for your situation. 

It may be beneficial for you to look for an experienced financial consultant for guidance.

If you are in need of financial advisors on the Central Coast, Leo Wealth is the perfect partner. Our financial consultants will help you in your retirement planning strategies, including superannuation advice. 

Book an appointment today, and let’s talk!