Nearing retirement? Topping up your super is a smart way to get ahead

If you’re nearing retirement and have cash to spare, making additional contributions to your superannuation can be a smart way to get ahead.

“Topping up your own super is arguably one of the best ways to build wealth, because super is such a low-tax environment,” says Arash Zamansani, wealth advisory partner at William Buck.

“The flipside is that you’re locking up those savings, but if you’re only a few years out from retirement, that’s less of an issue.”

Here’s what you need to know about additional super contributions and the difference they can make to your retirement nest egg.

Salary sacrificing is when you ask your employer to deduct money from your base salary and pay it into your super account along with the 12 per cent super guarantee. Both salary sacrificing and the super guarantee are known as concessional (or before-tax) contributions.

Salary sacrificing is the most effective way to bolster your super balance, says Zamansani. “That’s because you only pay 15 per cent tax on the money going in, the same rate as your guarantee contributions.”

There is a yearly limit of $32,500 on concessional contributions, which means if your employer makes $22,500 in super-guarantee payments, you can add $10,000 yourself.

Any investment earnings on salary-sacrifice amounts are taxed at a maximum rate of 15 per cent, not at your marginal tax rate.

You can also top up your super using your take-home pay or other earnings.

Because your marginal tax rate has already been applied to your take-home pay, no additional tax is payable when you transfer this money into super.

Like other types of super deposits, any interest earned on non-concessional contributions is taxed at 15 per cent. The annual non-concessional contribution limit is $130,000.

As a general rule, you should only consider non-concessional contributions after you have reached your concessional-contribution limit, says HLB Mann Judd wealth management partner Jonathan Philpot.

“Making sure you’ve taken advantage of the more generous tax rules for concessional contributions before moving on to non-concessional contributions is an easy win.”

However, if your financial situation is uncertain and you’d rather receive all your take-home pay initially, non-concessional contributions might make more sense for you.