Despite recent market falls superannuation is still the most effective savings vehicle for your retirement, says Justin Frohnert of Grant Thornton Financial.
Superannuation offers the following key benefits:
- Low tax - there is a maximum 15% tax on your savings as they accumulate and potentially nil tax in retirement
- Flexibility – your investment choices are limitless provided your super is used for investment purposes
- Asset Protection – your superannuation is protected under bankruptcy law
In fact superannuation is so tax effective that the government has placed restrictions on how much you can contribute into this environment. From 1 July 2009, the amount that can be contributed to your account on a concessionally taxed basis was halved to:
- $25,000 for persons under age of 50
- $50,000 for persons 50 years and over
For many investors who have experienced significant losses in superannuation these restrictions add to the major challenge on how to tax effectively rebuild retirement savings.
What steps can you take to boost your super?
To help boost your superannuation the following steps should be taken:
1. Consolidate your super
Apart from ease of management, consolidating your super into a single account should reduce your costs as you will only pay one set of fees.
2. Own your income protection in your personal name
Income protection premiums are the only insurance costs you may personally claim a tax deduction for and apart from having your superannuation pay for the premiums there is no advantage in owning this policy via your superannuation.
3. Non Concessional Contributions
Generally, if you are under 65 you can contribute $150,000 p.a. or $450,000 averaged over 3 years into super on a non concessional basis (i.e. where a tax deduction is not claimed). Given the recent market downturn a great opportunity presents itself to transfer personal investment portfolios into super without triggering any capital gains tax.
4. Invest for the long term
Ensure you take a long-term perspective, for most of us super is a 30+ year investment. This means investing in growth assets, such Australian & International shares may outperform lower risks assets such as cash and fixed interest over the long term.
5. Gearing (borrowing to invest)
For long term high risk investors gearing in super can help tax effectively boost your retirement savings and investment choices. This strategy essentially involves your super fund borrowing money to invest in assets such as shares or direct properties with all income and expenses being received/paid by your superannuation.
Whilst superannuation is the most tax effective vehicle for your retirement savings it is strongly recommended that you seek professional advice to avoid any potential pitfalls and help maximise your returns.
Warning Information Only:
The enclosed information is provided as an information service only and should not be relied upon as a substitute for financial product advice. None of the information takes into account the investment objectives, financial circumstances or investment needs of any particular investor. You must therefore assess whether it is appropriate in light of your own individual circumstance, to act upon the relevant information. It is advisable that you obtain professional financial advice before making any investment decision based on the information provided below.
Get Free Advice
All current Entity Solutions IPros are eligible for a free no obligation appointment with a Financial Planner. To enquire simply contact your Customer Executive.
Entity Solutions thanks Grant Thornton Financial for providing the above article