How high-income earners can benefit from voluntary super contributions

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Adding voluntary super contributions, including personal contributions, to your retirement strategy can reduce your taxable income while boosting your retirement savings. Options like salary sacrifice or personal concessional contributions allow you to grow your super fund savings more quickly and pay less tax compared to your marginal tax rate. These contributions, up to the concessional contribution cap, can help you better manage your taxable income.

You may claim a tax deduction on personal super contributions, offering the dual advantage of reducing your income tax while increasing your super balance. High-income earners can particularly benefit by making extra personal contributions to maximise unused cap amounts over the rolling five-year period, lowering their tax liabilities. However, staying within the concessional and non-concessional contribution caps is important to avoid paying extra tax on excess contributions.

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What are voluntary contributions?

Voluntary contributions are a way to add extra money to your super account from your after-tax income, savings, or even funds from an inheritance or the sale of an asset. These contributions are separate from the compulsory employer super guarantee payments.

Adding voluntary contributions not only helps grow your super faster, it can also provide tax benefits. Depending on your situation, you may be able to claim a tax deduction or take advantage of government co-contributions.

Another option to consider is salary sacrifice. This involves an agreement with your employer to contribute part of your salary to your super before tax is taken out. The sacrificed amount is taxed at 15%, which may be lower than your usual income tax rate, helping you save more and potentially pay less tax over time.

What are the types of voluntary contributions?

Voluntary super contributions in Australia fall into two main categories: after-tax contributions and before-tax contributions. Knowing the difference between these can help you grow your super and potentially save on tax.

After-tax contributions

Also known as non-concessional contributions, these come from your take-home pay, savings, or other funds that have already been taxed. Since they are made with post-tax money, they won’t be taxed again in your super account.

Before-tax contributions

Known as concessional contributions, these include salary sacrifice contributions made from your pre-tax income. These are taxed at 15% within your super fund, which may be lower than your marginal tax rate. This can reduce your taxable income and help grow your super over time.

What you need to know about voluntary contribution restrictions

Understanding the restrictions on voluntary contributions is essential for effective super planning. These contributions do not include employer-paid super guarantee amounts and are subject to rules based on age, total super balance, and whether you meet the work test. Once you turn 75, stricter rules apply, limiting the types of voluntary contributions you can make.

What voluntary contributions don’t include

Voluntary contributions are separate from the super guarantee payments made by your employer. Employer contributions are accepted by your super fund regardless of age or work status.

Age-related rules for voluntary contributions

Under 75 years

Your super fund can accept most contributions, such as salary sacrifice or after-tax payments. For those aged 67-74, meeting the work test or qualifying for a work test exemption is required to claim a tax deduction.

75 years or older

Your super fund can accept employer contributions, downsizer contributions, and voluntary contributions during a 28-day period after your 75th birthday month. After this period, voluntary contributions are generally not accepted.

Work test requirements

To meet the work test, you must work at least 40 hours within 30 consecutive days during the financial year. Passive income or unpaid work does not count toward this requirement.

Schedule a consultation today to better understand how these rules apply to your situation and make the most of your super contributions.

3 benefits of voluntary contributions

Voluntary super contributions, whether made as after-tax contributions or salary sacrifice contributions, can help grow your retirement savings while providing valuable tax advantages. These contributions allow you to make the most of your super fund and reduce the tax you pay on your income or investments.

Grow your super faster

Making personal super contributions, such as after-tax contributions or salary sacrifice contributions, helps accelerate the growth of your super account. Small, consistent contributions benefit from compounding returns and the lower tax rates on earnings within a super fund. This strategy can make a big difference to your retirement savings over time.

Pay less tax on investments

Concessional contributions, such as salary sacrifice, are taxed at a concessional rate of 15% within your super fund. For high-income earners, this rate is much lower than the marginal tax rate of up to 47%. By adding extra contributions to your super, you can reduce the tax on your income while growing your retirement savings.

Claim a tax deduction

When you make a personal concessional contribution, you can claim a tax deduction by submitting a notice of intent to deduct to your super fund. Once acknowledged, these contributions are taxed at the concessional 15% rate instead of your marginal tax rate. This can help you manage your tax contributions and maximise your superannuation balance.

TMS Financials provides you with a team of experienced professionals that help you achieve your financial goals through smart tax structures and strategic financial structuring. We’re a one-stop shop for all financial needs and pride ourselves on building strong partnerships with our clients.

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This outline is for general information only and not as legal, tax or accounting advice. It may not be accurate, complete or current. It is not official and not from a government institution. Always consult a qualified professional for specific advice tailored to your unique circumstances.