Gearing up for retirement: using your super contributions to reduce your taxable income

If you are thinking about retirement and want to use a super contribution strategy to benefit from tax savings, read on.

Here are some tried and tested tax strategies you can use to put your super in overdrive while reducing the tax you pay.

Ways to minimise tax before retirement

Focusing on maximising your super while reducing your tax seems like some strategic retirement tax planning. But, with our help, it’s easier than you think.

Use our super contributions calculator to see whether a before-tax super contribution strategy or an after-tax super contribution strategy is right for you. Because what you do now, can still make a big impact when you retire later.

Example: Liz, 60, Small business owner

Liz plans to retire in the next decade and wants to boost her super while reducing her tax.

To do this, Liz starts a transition to retirement strategy. She opens a Transition To Retirement (TTR) income stream account, and receives pension payments from her TTR. Liz also contributes to her super account with a salary sacrifice contribution. This strategy can reduce Liz’s tax bill because she receives her pension payment which is free from tax each month and contributes back to super in a way that lowers her taxable income. Liz can also boost her super at the same time because she make her salary sacrifice contributions larger than her monthly pension payments with the extra tax savings. Before she retires, Liz also makes a $120,000 non-concessional super contribution (payment put into your super from your savings or from your after-tax income). This is so that Liz can take advantage of the non-concessional contributions cap before it resets in the following financial year.

She also plans to sell her home and put up to $300,000 from the sale into her super as a downsizer contribution , which won’t count towards any other contribution caps.

By implementing these strategies, Liz effectively reduces her tax while boosting her super. TTR allows her to access her super while still working, providing tax-free pension payments from age 60, which can then be re-contributed in a tax effective manner back into super. Additionally, by making a $120,000 non-concessional super contribution and a $300,000 downsizer contribution, Liz maximises her super contributions without exceeding contribution caps. These steps ensure she is well-prepared financially for her retirement.

There are also other ways to make voluntary contributions to your super for you to consider. 

Spouse contributions can be made as an after-tax super contribution and provide a tax offset of up to $540, provided your spouse’s annual income is less than $40,000. 

Remember, for after-tax super contributions you need to submit a Notice of intent to claim a tax deduction form to claim the contribution as a tax deduction. Your contribution is then treated as a concessional (before-tax) contribution at the rate of 15%*.

Takeaways 

• Transition to retirement (TTR) contribution strategy (via salary sacrifice) can reduce your tax while you’re still working. 
• Non-concessional (after-tax) contributions allow you to use the bring forward rule meaning you can use any unused caps from previous years.
• Downsizer contributions allow you to put the proceeds from selling your home into your super without counting towards any other contribution caps.
• Making additional super contributions leading up to retirement can be one of the best tax strategies for retirees in Australia.

If you’re unsure where to start with your super, we’re here to help – you can book a complimentary 15-minute chat with a super specialist at a time that suits you. 

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This article is current at the date of publication and is subject to change. It contains general information only and does not take into account of your specific objectives, financial situation or needs or personal circumstances. You should seek personal advice or professional financial advice, consider your own circumstances and read our Product Disclosure Statement (PDS) before making a decision about Prime Super. For a PDS and Target Market Determination call 1800 675 839 or visit the primesuper.com.au/pds. Prime Super Pty Ltd ABN 81 067 241 016 AFSL 219723 RSE L0000277 is the (Trustee), of Prime Super ABN 60 562 335 823 RN 1000276.  

* Concessional contributions such as salary sacrifice are generally taxed at 15% when received by the fund, however a higher rate of tax may be payable on these contributions if your income and before-tax contributions are more than $250,000 in a financial year, or if you exceed your concessional contributions cap.