If you are renting, you may want to start saving money for a home, family and or some extra schooling. Once those savings have been started, then you are ready to starting contributing additional funds to your SMSF.
Contributions After Tax
One way to build your superannuation fund is through your ‘after tax’ income. By investing in your super fund, you will earn a larger return on interest than you would by investing in assets that are not in your super fund – plus these contributions are not taxed. In many cases, employers are even given the incentive to add more money to your supper fund when you contribute to it, because of the tax benefits offered.
One limitation you should be aware of is you will have to pay the highest marginal tax and the Medicare levy if excessive contributions are given. You can find out how to avoid this by asking your financial advisor about the highest contribution you can make without being penalised.
Government Co-Contributors And Salary Sacrifice
The government can also become a contributor to your SMSF, but this depends on how much you make annually and how much money you contribute to your retirement fund. For people that meet a certain criteria, the maximum contribution from the government is $1,000 annually, but if your income exceeds $60,342, you are not eligible for this government co-contribution scheme.
Salary sacrifice is done by contributing a certain amount of your wages to be placed into your super fund, prior to it landing in your bank account. For example, if you make $71,000, you can sacrifice $10,000 which will automatically be placed into your SMSF, creating a new salary of $61,000.
By choosing to do this, you will be able to save more in the long run, as only 15 per cent of your salary sacrifice will be taxed and your new salary will be placed into a lower tax bracket. You will end up with more money in your super this way than by taking out the $10,000 from your bank account and then depositing it into your SMSF. Just keep in mind that this type of salary sacrificing cannot exceed $25,000 per year.
Spousal Contributions
The last type of contribution that can be made to the self managed super fund is a spousal contribution. You can contribute up to $3,000 to this person, as long as they live with you on a full time basis (i.e. you are married to that person or are in a de facto relationship) and they have a lower income than you.