Are you 5-10 years out from retirement in Australia or are you ready right now to take the plunge into retirement? Perhaps you have already retired but aren’t sure if you’ve optimised your finances to get the best mix of enjoying life now and longevity of your funds. The Retirement School takes you through a step by step guide of everything you need to know about money in retirement. It covers topics from superannuation through to retirement income, age pension, downsizing and making sure you estate planning is in order. This is a 12 part series which you can learn at your own pace. We include action plans for each topic and useful links and other resources to help you personalise your retirement journey from a financial perspective.
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Contributing to super can make the most significant difference to your retirement savings. In this topic we discuss the rules around contributing to super including the different limits for before and after tax contributions, how salary sacrifice works, how you can make personal tax deductible contributions and opportunities like the government co contribution, downsizer contribution and spouse contribution.
The notes on the link below show an example of salary sacrifice, and instructions on how to use MyGov to check your contributions limit availability.
1) Check the rate your employer is making as mandated contributions to understand if it is pre tax or after tax and whether it allows any space to make further contributions in each financial year.
2) Check if you are eligible for any catch up concessional contributions. The easiest way to do this is via MyGov reporting and there is a short instruction showing you how to do this in the Notes.
3) You can also check non concessional contribution history on MyGov if you have a lump sum available to contribute from your own savings (see Notes).
4) Check eligibility for co contribution, downsizer and spouse contributions on the ATO website (see Links) or by talking to your super fund.
5) Contributions can be tricky as there are a lot of rules to comply with and penalties could apply for getting it wrong. Consider getting financial advice to make sure you maximise the contributions you can make within the appropriate limits.
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Hello and welcome to our second topic for the retirement school, which once again is focused on super, but this time on how to contribute money to superannuation. Now, this is a really big topic and it can get a bit technical, and I just wanted to reassure you if you're listening and you're trying to work out what contributions apply to me, then look at the resources that I've put in the notes. There will be links to the different contribution types, and you can at your leisure look at the rules surrounding them because it's going to be tough to cover them all in great detail in this topic. But I just want to give you a very broad overview on why contributing to your super fund can make such a difference and how you can do it. So, as I said back in topic one, contributing to your super fund has the biggest impact on your retirement savings. Investing well is nice, but it's the money you put in that really makes a difference and compounds over time. And as people get closer to retirement, they get a bit more interested in contributing to the super. And there's a couple of reasons for this. First, maybe family circumstances have changed, you're not supporting dependents, you're not paying off a mortgage, so you have more available cash to put into Super. The second important thing though is that contributing to Super is not limitless. There are rules around every type of contribution, and depending on how long it is before you want to retire, you might have quite a short time frame to maximize the sort of money you can get into Super. So let's start with the most common type of contribution to many Australian super funds, and that is the ones made by your employer. Now, the federal government has mandated how much of your salary an employer must contribute to Super, and currently this is 12%. Now, this full 12% may not be available if you're a high income earner as there is a maximum cap. But generally it's going to be 12% of your salary for most people. So these contributions are made to most Australian employees, and changes last year meant that even adult casuals as well as full-time workers get mandated super contributions. So only self-employed, some contractors, people not working, or people on centre leak benefits don't get super guaranteed contributions now. And some of those groups will really need to make contributions to super themselves, and we'll talk about that in a little while. The contributions paid by employers are most commonly before tax. So what that means is the employer will put in what represents that 12% amount at a gross number. So if you're earning $50,000 a year, then they might be putting in $6,000 in different time frames. And then when it hits the super fund, it's going to be taxed, so it's before tax, remember, at a concessional super tax rate of 15%. The super fund will take that out. Now, occasionally, not common, but occasionally, some employers may pay super contributions after income tax has been deducted from the money, and that may mean you're paying a higher tax rate than you need to. So it's something on the actual list to check out. But when we talk about employer contributions, we're going to assume that it's done pre-tax. So all contributions to Super are subject to limits, and I wanted to talk about employer contributions first, as there is a common misconception that these aren't included in the limits, that the limits only apply to money you put in. And that's not correct. Employer contributions contribute to the pre-tax contribution limit of currently $30,000 per financial year, but it goes to $32,500 after the 1st of July 2026. Now these pre-tax contributions may also be known as concessional contributions, and that's just really because only a concessional rate of taxes applied that 15%, which can mean for many employees that there's a tax saving on that money. Now the second type of contribution you can make is where you use money from which tax has already been deducted. So even on those employer contributions, if they've taken income tax out, it's after tax money, but it might also be money that's just come from your savings. And in this case, the government won't deduct tax again, so they won't deduct that 15%. A super fund won't be asked to deduct that 15%. It will go in the amount that goes in is what will stay in super. Now the non-concessional after-tax contribution limit is currently $120,000 per financial year, but this increases to $130,000 after 1 July 2026. And there's an opportunity to contribute more than that in one go on a three-year basis, and we'll talk about that shortly. So the important thing to note though with these after-tax contributions is even though you're not getting a concessional tax treatment on that money, it is still subject to being preserved in super until generally that age 60 that we spoke about in the last topic. So you've got to be prepared if you're putting your own money, your own savings in for it to be locked away. Okay, so on those concessional pre-tax contributions, whilst your employer is the most common way that those are put into super funds, there's also an opportunity to make concessional contributions via something called salary sacrifice, and that's when the you ask your employer to make additional contributions pre-tax, so they take it out of your pay packet before that income tax is applied, and it's normally on an ongoing basis, or people might do it for a short period, but they have to stop and start it for salary sacrifice. Now, unfortunately, this method is only available to people working for employers. So if you're self-employed, you can still do something like this, but it won't be via a salary sacrifice arrangement. So if we take an example of this and Mary's example is in the notes for you to look at later, Mary earns $98,000 per year and she wants to retire in two years' time, and she's trying to put more money into Super. So one of the things that she might do is ask her employer, I want to top up the contributions you're making to the maximum I can, currently that $30,000 a year. So with Mary's wage, her employer at 12% is contributing at about $11,760 in super for her already. So the balance of that $30,000 is $18,240. So what Mary can ask is if she had the full year at her disposal, please take $700 per fortnightly pay out of my pay, what you would normally be taxing and then putting my bank account. Instead, put it in my super fund, and that would roughly equate to her putting in that extra $18,000 or so. Now, apart from boosting her super with extra money every year, there could also be a tax saving. So what I've done is I've put the two scenarios as if Mary was to receive that as salary in her bank account versus what would happen if she was to be to put it in before tax. And you'll see that she doesn't lose the $700 from her take-home pay because what it means is that because she's taking it out before marginal income tax rates are applied, and of course they're a sliding scale, she's actually paying less income tax, and the impact to her take-home pay is more like $476 per fortnight. You have to be careful here though, because even though Mary is not getting quite as big a reduction on her take-home pay as what she is putting into a super, of that $18,000 she's putting in, the super funding is going to take 15% out of it. So it's not a straight swap. She's not going to keep all that $18,000 in there. But it does illustrate that using salary sacrifice for some people can mean that they pay less income tax and boost their retirement savings. So if they can afford it, it's a very popular strategy to do during their working life, but particularly people start focusing on it pre-retirement when they might have more cash flow. You've got to be careful with it because there is a tax-free threshold for employment earnings up to about $18,000. There then is a rather large tax bracket, there's only 16%. So it may not give you as much benefit as the example I've used there for Mary, and that's what you need to understand and run some numbers on before you go straight away to saying salary sacrifice will save me tax. You've also got to be a little bit careful of timing. So the limit that I'm talking about is set every financial year. You need to match the deductions you do from pay to that financial year period. You could do it for part of the year and work out that I want to put $18,000 in, I've only got 18 fortnights left, so I'm going to put a thousand in per pay rather than the 700. Where you have to be careful there is that when it rolls over to the next year, if you don't amend that, you're then going to be putting in additional contributions, which will mean that you exceed the limit. The other thing that you have to watch out for is if you get regular overtime bonuses or any other type of payment, second employment or something like that, that is going to be contributing to your super contribution pre-tax limit. Once again, doing salary sacrifice if you don't work it out properly can mean that you go over the limit. Now, if the limit is exceeded, the tax office requires you to either withdraw the funds from Super or keep them in Super, but now you don't get the tax deduction from them. The pre-tax marginal income tax rates apply and they're treated as after-tax contributions. So when it comes to doing employer contributions to Super, you don't just have to do pre-tax. So if you're already your 12% is already using up your limit or getting close to it, your employer can make after-tax contributions for you. But what they'll do is they'll treat it like a normal pay packet. Instead of putting all your pay in a bank account, some will go to the bank account, and then the amount you nominate additional will go to the super fund. And obviously, the 15% won't apply the super contributions tax because you've already paid tax on your marginal income. So if you're self-employed or contractor or something like that, and you want to get that concessional tax treatment of only 15% up to the limit, then you can do this in a similar way to what I was just talking about. You can make an after-tax contribution straight to your super fund, usually by something like BPA, and you can put in, like I said, up to that limit. The way that you get the 15% tax treatment is that you claim a tax deduction on those contributions. Now there are some more steps involved than simply claiming a tax deduction at the time of doing your tax return, and you've got to be really careful here because if you don't follow the steps properly, you don't fill in the form properly, you don't wait until you've done that before you do your tax return, it may mean that that deduction to super is ineligible for the concessional tax treatment. So make sure you get in touch with your super fund if you want to do that. Now the last thing with pre-tax or concessional contributions is the federal the federal government introduced this rule called catch-up. So for people that take a career break or have received lower income, meaning they got none or low super contributions during the five previous years period, you can catch that up in later years. This can be incredibly useful, particularly well, these days a lot of dads take paternity leave as well, but for people that have taken that career break, may have been due to illness and they feel like I've slipped behind with my super because I wasn't putting in the 30,000 a year that other people could have if they were fully employed. So you can use this catch-up to bring forward some of what you didn't contribute into a later year. So there's some really strict rules around it. Your super balance has to be less than 500,000 to do it as of 30th of June, the financial year before you make a contribution, and um and you need to check what you have available for you to carry forward over the five-year period because the limits change over time. So I won't um dwell on that too much because it can get a bit complicated. It's worth getting advice. I've seen people pre-retirement really make some decent catch-up contributions, something like you know, $50,000, $80,000 into Super, and there's some really clever strategies where you can use sort of a bit of a drawdown from Super if you're over 60 to fund that, and it's just that you perhaps get a better tax rate by doing it. So one to check out whether you're eligible for and get some financial advice on. Okay, the second main way to contribute to Supra is that after tax money, and generally, this is money where tax has already been paid on it. So whether it's from salary that you've converted to savings, or whether it's from an inheritance or a capital gain, or if you're lucky, something like a lottery win. Um it's not the government is not going to tax you again. Um, so you need to nominate when you're making that contribution to super that it's after tax or non-concessional. And why would you want to add funds to Super? It'll become clear as we talk about the tax treatment of super income streams after your retirement essentially being tax-free. And because there are limits, if you've got a large amount of money that you want to put into super because you're playing catch-up, maybe you owned a business and you haven't been contributing all along and you feel like you're a bit behind, you need to paste that very cleverly to get the maximum amount of money in. The current limit for after-tax contributions is 120,000 per year, so about four times of that pre-tax limit, and from 1 July that's going to 130,000. The three-year rule that I talked about before was where you can put a larger sum in, so a sum equivalent to three years of contributions, so $360,000 at the moment, $390,000 after 1 July 2026. Now, unlike the pre-tax limits, the the treatment by the ATO if you go over these limits is quite strict. You can't keep the money in super if you go over the after-tax limit. The ATO will make you withdraw it and they can charge you a penalty. So you've got to be really careful with your after-tax contributions that you understand what limit you have available to you. And one of the ways to do this is to use MyGov, which for many people in retail super funds will have a fairly accurate record of after-tax and pre-tax contributions that have been made year to date. Some things to watch out for that definitely catch people out is where there are after-tax contributions that perhaps have snuck in because your employer paid them as after-tax. I've seen employment situations where bonus, super on bonuses are paid after-tax, whereas super on regular salary is paid pre-tax. So you need to understand that. People who you know exceeded their pre-tax contribution in one year, and then it then they decided to keep it in super, but it then became an after-tax contribution. They forget about it, they try to use the maximum after-tax, but there's some already there that's been made after tax, and that's going to trigger you exceeding the limit. It's more of an impact when you want to use that three-year rule because the limits change. If you made even a small after-tax contribution a couple of years earlier, you're then only allowed to put the three-year limit in from that couple of years earlier, and that's gone up quite a bit over the last 10 years or so. So it might mean you could only put in 300,000 now instead of the 390. So you've got to be really careful to make sure you don't exceed the after-tax contribution limits. Okay, there's some other ways that you can add to your super with contributions. This one is a great one for low-income earners, and that might include people who are retiring at the start of a financial year and are getting a very low salary income, like a small salary income in a financial year, so they qualify for this one. This is called the co-contribution, and that's where the federal government has tried to encourage people to add to their own super balances. So, what they do is for a thousand dollars that you put in of your own after-tax money, not pre-tax money, not employer contributions, but your own money, they will give up to $500 as a co-contribution, which doesn't count towards your other contribution limits. Once again, it's a little bit convoluted, this one, and I've put a link in there. It is a sliding scale, so the maximum $500 will be paid if your income is below $48,000 and it slides up to about $62,000. Currently, those limits can change before it cuts out altogether. So you need to understand if you're between those limits, how much you can put in and how much it'll be matched by. Now, another thing with Super, another opportunity is putting contributions in on behalf of a spouse because people worry, particularly when only one partner is working, that the other partner's balance is lower than the working partners in Super. And Super is an individual asset, you can't combine it at a household level. So, apart from withdrawing money from Super when you're eligible and putting it into a spouse's balance, there's a couple of contributions you can do along the way. The spouse contribution is one where you get a small tax rebate benefit from putting money in on your partner's super account, but once again, there's really strict eligibility rules. So I've put a link in, the receiving spouse can't earn more than $40,000 a year, current limit, and of course, those limits change. So fairly modest earnings for the spouse, and the maximum contribution you can make is $3,000. But for that $3,000 contribution, you can get a $540 tax rebate. So that could be a good one for a partner that's earning less to split some of the super. There is another thing called spouse splitting of contributions, which can be done even through your employer, but once again, there are strict rules and not all. Super funds will allow you to do it. So check that one out. You need to decide, I guess, whether it's worth doing that or waiting until you're eligible to withdraw larger amounts of money and transfer it over. So the last aspect I want to touch on in relation to contributions and why it becomes really important pre-retirement is there's an age limit to making contributions to Super. Generally, that age limit is 75, or more specifically, within 28 days of the end of the month, you turn 75. I was talking to somebody the other day who turned 75 at the start of July, and so they don't get much of a benefit in that financial year. People turning 75 in May or June might benefit a bit more from it. Now, this is for non-concessional after-tax contributions. For concessional contributions, the pre-tax ones, there's different rules. So when it comes to employer contributions, there's no upper age limit. So as long as you keep working, your employer has to make super contributions for you. They can continue as long as you are gainfully employed. However, where you want to make pre-tax contributions personally, either through salary sacrifice or claiming a tax deduction, the automatic cutoff point is age 67. And to make contributions after that, you have to pass a work test. So the work test generally involves that you're gainfully employed for at least 40 hours in a 30-day period, and it's an annual test. So it excludes unpaid work such as volunteering or investment income, and you have to do this work test each year to continue to qualify to put in those personal pre-tax contributions. So as you get closer to retirement and these age limits, it takes a lot more careful planning of getting the right mix of before and after tax contributions, maximising the dollar value limits of contributions, and particularly if you've got a large asset that you want to sell and there've just been capital gains changes made in the May 2026 budget. This is where financial advice is going to be really important to do that in a very considered way. I know I've talked about a lot of things in this topic and it can be confusing, so I would encourage you to go and look at the links to understand more about each of these contribution types. Some things you can do as an action item is make sure that your employer that you understand whether paying pre-tax or after tax and on what basis to make sure it's suitable for you. The other thing to do is go to MyGov, I've put a link on how to do it, check what limits you've used, whether you've got catch-up available to you, whether you've got a non-concessional contribution history that's going to impact you, putting savings in, and check your eligibility for things like co-contribution, downsizer and spouse contributions. Contributions can be really tricky, so getting advice. This is one where you want to have an idea of what you could do and what money is available to you. When you get to that advice appointment, you really need to understand what money you've got available to put into Super so that you can get good advice. Okay, that's it for contributions. See you in the next topic. We're staying on Super. We're going to look at insurance in your super and whether you need it and what to do with it in retirement. See you then.
