Voluntary superannuation contributions can be made in 3 main ways:
- As a Personal Non-Concessional Contribution
- As a Personal Concessional Contribution; or
- As a Salary Sacrifice Contribution
A bonus about Personal Non Concessional Contributions is that it may entitle you to the Government Superannuation Co-Contribution. Read this article that I wrote on the Superannuation Co-Contribution.
Voluntary Superannuation Contributions
Personal Non-Concessional Contributions
Personal Non-Concessional Contributions are contributions that you make to your superannuation with after-tax dollars. This is often money paid into super from your personal bank account. However, some employees have these types of voluntary superannuation contributions paid using after-tax dollars from their wage – prior to it hitting their bank account.
The benefit of Personal Non-Concessional Superannuation Contributions is that you are contributing more to your retirement savings in a tax effective manner. It is tax effective because all earning, including capital gains, are taxed at a maximum rate of 15% within super. This is often a reduced tax rate when comparing it to your personal marginal tax rate.
Personal Non-Concessional Contributions do not incur tax upon entering or exiting your superannuation account.
Personal Concessional Contributions
Personal Concessional Contributions are voluntary superannuation contributions that you make to your superannuation and claim a tax deduction for (different to Non-Concessional where no tax deduction is claimed). Only self-employed or substantially self-employed personas are eligible to make Personal Concessional Contributions. This is often money paid into super from your personal bank account or business account.
Similar to Non-Concessional Contributions, the benefit of Personal Concessional Superannuation Contributions is that you are contributing more to your retirement savings in a tax effective manner. However, there is also the added benefit of claiming a tax deduction for the contribution made (this should be confirmed by your tax accountant).
Personal Concessional Contributions incur 15% tax upon entering your superannuation account and may be subject to taxes upon withdrawal – depending on the circumstances at the time of withdrawal.
NOTE: YOU WILL NEED TO MEET THE SUPERANNUATION WORK TEST TO MAKE THE ABOVE TWO TYPES OF CONTRIBUTIONS IF OVER AGE 65.
Salary Sacrifice Contributions
Salary Sacrifice contributions are voluntary superannuation contributions made by forfeiting part of your wage in exchange for increased employer superannuation contribution. This can be achieved by speaking with the payroll officer at your place of employment and organising how much you would like to salary sacrifice. You will often be able to nominate your preferred superannuation fund using a Superannuation Choice form.
Salary Sacrificing into superannuation increases your retirement savings in a tax-effective manner, but also reduces the amount of income assessed at your marginal tax rate, consequently reducing income tax payable. Many people over age 55 do this as part of a transition to retirement strategy, as shown by this example. A transition to retirement strategy is also possible to implement with a SMSF.
Salary Sacrifice Contributions incur 15% tax upon entering your superannuation account and may be subject to taxes upon withdrawal – depending on the circumstances at the time of withdrawal.
Important – All contributions made to superannuation are inaccessible unless you meet a superannuation condition of release. However, there are some limited circumstances where you may have early access to your benefits.
Therefore, you need to ensure that you are not likely to need any amount contributed to super prior to retirement.
Once you have retired, you can then commence an income stream using all or part of your superannuation savings.
If you would like anything clarified or have any further questions about Voluntary Superannuation Contributions or any other topics, please do not hesitate to leave a comment in the section below and I will endeavour to respond within 24 hours.