Superannuation rules: Superannuation is a percentage of your income set aside for access after retirement. Strict rules and compulsory fund contributions have put Australians’ retirement savings ahead of many countries without mandatory retirement contributions.
Superannuation is straightforward for most wage or salary earners, as it comes out of their pay. However, once you start delving into superannuation and tax rules, and trying to work out your retirement funds, it becomes complicated.
Here is some important information to teach you more about superannuation and help you prepare for your retirement. Even if retirement is decades away, it’s good to start saving early to ensure you can live the desired lifestyle once you retire.
How Much Super Is Your Employer Required to Pay You?
Employers must pay a minimum of 9.5 percent of an employee’s total earnings into their superannuation account, known as the Super Guarantee (SG). For example, if your earnings are $50,000, your employer must pay $4,750 into your super account. This contribution will increase to 10 percent in 2021 and gradually to 12 percent by 2025.
Superannuation Criteria
To be eligible for employer superannuation contributions, you must be under 70, working full-time, part-time, or casually, and paid over $450 before tax per month. If you’re under 18, you also need to work more than 30 hours a week.
Superannuation Standards, Rules, and Compliance
All superannuation funds must be complying and meet legal standards. The federal government’s ‘Super Fund Lookup’ is a free register of complying funds.
Superannuation for Self-Employed Australians
Self-employed individuals can choose to join and contribute to a fund, with most being able to claim a full tax deduction for contributions they make to their super until age 75.
What Happens to My Super Contributions?
Money in your superannuation account is invested by your super fund, which offers various investment options. It’s recommended to check your superannuation situation annually during tax time.
Superannuation Contribution Rules and Limits
You can’t put all your extra money into superannuation. The ATO limits both concessional (before tax) and non-concessional (after-tax) contributions.
‘Before-Tax’ Contributions
Concessional contributions are pre-tax contributions to your super fund, including the employer’s required 9.5 percent contribution and any additional pre-tax salary sacrifice arrangements. Most people can make pre-tax contributions of $25,000 each year, taxed at 15 percent by the super fund.
‘After-Tax’ Contributions (Non-Concessional Contributions)
Non-concessional contributions are post-tax contributions you make to your super fund. Currently, most Australians can make a non-concessional contribution of up to $100,000 annually. Contributions above the limit are taxed at 47 percent.
After-tax contributions can boost your super balance, especially now that you can claim a deduction for these contributions on your tax return. To claim this deduction, you must notify your super fund and receive acknowledgment.
Remember, claiming an after-tax superannuation contribution on your tax return effectively converts it to a ‘before tax’ concessional contribution, included in your $25,000 yearly limit.
