Money

Your $109,385 super opportunity thanks to the 2024 Budget

There's an opportunity to boost your super with these savvy tips from Citro's money expert Nicole Pedersen-McKinnon.

Think government budgets are boring? Well listen up: if you're still working you have a major opportunity to boost your superannuation and live better when you officially retire if you put your tax cuts and energy rebate to good use.

By Nicole Pedersen-McKinnon

Inherent in the Budget this year – but unintended and largely unnoticed – is a big opportunity to dramatically boost your super.

And it’s especially good for anyone fast approaching retirement.

Those stage three tax cuts we are all about to get? Can you live without the cash top-up? And that $300 electricity rebate… ditto?

With cost-of-living relief soon flowing and – if you buy the hype – interest rate cuts now coming, what if you instead salary sacrificed the extra you are about to receive into super?

The extra salary sacrifice scope

Let’s say you just salary sacrifice your stage three tax cuts. TelstraSuper has crunched the numbers and a 46-year-old on an average income could retire with an additional $109,385 in super if they salary sacrifice the extra pay they receive as a result of the tax cut.

Remember that’s left you financially neutral today, with no additional expense than you are used to.

What are the assumptions of the modelling? In this ‘gain without pain’ example, you make $80,000 a year and salary sacrifice an amount that keeps your take-home pay the same after the tax cuts on July 1, for the 22 years left until retirement at age 67. The assumed return is an historic average of 7.5%.

In this circumstance, pre-tax income will increase by about $2469 after the tax cuts.

A TelstraSuper note to members drills down into the details, about hypothetical member Mary.

“Alternatively, if Mary decides to pocket the extra cash, her annual (after-tax) take home pay will increase by only $1679, as the extra $2469 before-tax pay will be taxed at Mary’s marginal income tax rate of 30 percent, with $780 paid in tax.”

To back up and explain, salary sacrifice contributions are made pre-tax so reduce your tax bill. (We will get into how to arrange one shortly.)

This is because you swap your marginal tax rate that could be as high as 45%. for the super contribution tax rate of just 15% (provided your salary package is less than $250,000 per year).

This makes salary sacrificing particularly attractive for anyone earning more than $45,000 a year, when a marginal rate of 30% begins applying, as you can reduce your taxable income.

That’s why – in a nutshell – you arrive at a super balance swollen by more than $100,000 from this strategy… but keep your take home pay at its current level.  

The table below shows how the numbers might stack up – in your hand versus saved in your super – for your own situation.

The potential benefit of using the extra pay from the 1 July tax cuts to top up your super  

Horizontal Scrolling
   
Your current salary Salary sacrifice amount before take-home pay affected Extra super at retirement** Take-home pay increase post 1 July with no salary sacrifice
$80,000 $2469 $109,385 $1679
$100,000 $3204 $141,959 $2179
$120,000 $3940 $174,533 $2679
$140,000 $5,999 $265,762 $3729
$150,000
$6113 $270,818 $3729
$160,000 $6113 $270,818 $3729
$180,000 $6113 $270,818 $3729

Source: TelstraSuper **Based on a 45-year-old retiring at age 67. Assumes earnings of 7.5% pa after tax for 22 years.  

Your individual savings and strategy

Setting up a salary sacrifice is usually a simple matter of contacting your employer and them liaising with your fund.

Key will be telling them how much you would like to sacrifice, particularly if you’d like your cash in hand to stay the same.

But you can easily crunch your own numbers on the excellent super calculator at MoneySmart.gov.au.

How much of a tax cut can you expect?

In your hand, you will get $929 if you are on $50,000, $2179 if you make $100,000 and $3729 on $150,000.

There are a couple of sanity checks to perform before you set up a salary sacrifice though.

Firstly, there is a $30,000 limit (from July 1, 2024) on how much you can pay into super in any given year before tax (called concessional contributions); if you go over this limit, you will be taxed heavily.

Note this was $27,500 until this year and there is also a five-year carry forward rule that lets you use up any unused limits from those previous years.

But it’s important to realise that this limit includes your employer contributions as well as any salary sacrifice ones.

If you’re a low or middle income earner, it might also be better to make post-tax (or non-concessional) contributions. Under the income threshold of $60,400, this should mean you are eligible for a government co-contribution of up to $500, if you pay in $1000 yourself. (And know
that under income of $40,000, a $3000 after-tax contribution from your spouse could earn them an up-to $540 tax offset.)

Don’t forget contributions are going up

Mandatory, superannuation guarantee contributions also go up again to 11.5% on July 1 this year – check your employer delivers. They will be at their final 12% destination from July next year.

This alone will swell your super a little more.

But that doesn’t mean you shouldn’t avail yourself of the big new ‘budget’ opportunity to boost it.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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