DID the money world move for you last week?
As the largest collection of rule changes in a decade shook the superannuation sector, most Australians were oblivious to them.
Unless you earn a huge income or have more than $1.6 million in savings, most of the July 1 super overhaul has little immediate negative impact, but there a few areas that everyone should look at.
It’s a worry that many people pay little attention to super, despite the fact that it will be their second-largest asset after their home. And for a growing number of Australians likely to rent for life, super will probably be their largest asset.
We would get annoyed if someone ripped $100 out of our purses or wallets, but often don’t worry about potentially high fees or poor investment choices ripping thousands of dollars a year from our life savings.
For many, super seems too boring, too complex, and if you can’t touch it until age 60 or later, why bother?
There is some good news for super fund members who don’t pay attention to their nest egg: research has found that leaving money in a fund’s default option can deliver better investment returns and lower risk than trying to choose your super assets.
It’s wise to spend a few minutes working out how your super is affected by the new changes.
Even if you’re not interested in how your super is invested, this month’s rule changes should be checked to see how you may be affected. Super specialists say Australians will need to start putting extra money into super earlier in life because of tougher new caps.
Here’s a quick guide:
1. You can’t salary sacrifice as much
A popular way to build wealth and save tax has been to salary sacrifice part of your wage each week. This potentially saves thousands of dollars of tax each year because the money going in is taxed at just 15 per cent for most employees, rather than their usual tax rates. The rule changes limit tax-deductible contributions such as salary sacrifice and employer compulsory payments to $25,000 a year.
2. There’s more tax deduction flexibility
If you want to put some extra cash into the low tax super environment, you can now do it at any time of the year. Previously you had to be either self-employed, semi-retired or use salary sacrifice. Now a lucky windfall in June could go straight into super for a handy tax deduction in July.
3. You can’t inject as big a lump sum
Lump sum after-tax contributions are often made with the proceeds from selling a house or shares, usually by people nearing retirement who want to get the money into super because after age 60 it’s all tax free, baby. The limit on these contributions is now $100,000 a year, but individuals can still pump in three years’ worth at once.
4. Consider generous incentives
Existing super tax breaks for low-income workers and government co-contributions of $500 are continuing, and the spouse rebate of $540 has been expanded to be available to anyone paying money into the super of a spouse earning below $40,000 a year.
It might only take a few minutes or a quick phone call to your super fund to see if you are affected, and it could be worth tens of thousands of dollars to you later in life.
8 July 2017