Boost Your Super with Salary Sacrifice
Salary Sacrifice and Your Super: Boost Your Retirement Savings
Building a healthy superannuation balance is one of the best ways to ensure financial security in retirement. If you’re looking to grow your super faster, salary sacrificing can be a smart and tax-effective strategy. But how does it work, and is it right for you? Here’s everything you need to know.
What is Salary Sacrifice?
Salary sacrifice is an agreement between you and your employer to divert a portion of your pre-tax income into specific benefits. One common option is to salary sacrifice into superannuation. This means part of your salary goes directly into your super fund, in addition to your employer’s Super Guarantee (SG) contributions, currently 11.5% for 2024-2025.
For example:
- If you earn $80,000 a year, you could choose to salary sacrifice $10,000 annually into super.
- Instead of paying your marginal tax rate of 30% on that $10,000, it will be taxed at the concessional super rate of 15%.
- Not only do you save on tax, but you also grow your super faster.
The Benefits of Salary Sacrificing Into Super
Salary sacrificing offers several significant advantages:
- Grow Your Super Faster
Regular contributions, especially when started early, can make a big difference. Thanks to compounding interest, even small contributions can snowball into a substantial sum over time. - Pay Less Tax
Salary sacrificed super contributions are taxed at 15%, compared to your marginal income tax rate (up to 30% for those earning over $45,000). This can result in significant tax savings. - Lower Your Taxable Income
By reducing your taxable income, you may stay in a lower tax bracket. This can help reduce other taxes like the Medicare Levy or make you eligible for certain government concessions. - First Home Super Saver Scheme
Up to $50,000 of your salary sacrificed contributions can be accessed to help purchase your first home. This makes salary sacrificing a dual-purpose strategy for young Australians saving for a house. - Set and Forget
Once set up, salary sacrifice contributions are automatic, making it an effortless way to save for retirement.
Is Salary Sacrifice Right for You? Things to Consider
While the benefits are clear, salary sacrificing isn’t for everyone. Here are a few points to weigh up:
- Impact on Take-Home Pay
Diverting part of your salary into super means you’ll have less money for day-to-day expenses. If you’re on a tight budget or saving for short-term goals, this could be a challenge. - Limited Access to Funds
Super contributions are generally locked away until you retire or reach preservation age (60-65). If you need access to funds in the short term, ensure you have enough savings outside of super. - Contribution Caps
The annual cap for concessional contributions (including employer SG and salary sacrifice) is $30,000 for 2024-2025. Exceeding this cap means extra contributions will be taxed at your marginal rate. - Income Levels Matter
If you earn less than $45,000, salary sacrificing may offer minimal tax benefits due to your lower income tax rate. - No Tax Deductions
You can’t claim a tax deduction for salary sacrificed super contributions since they come from your pre-tax salary.
Real-Life Benefits: A Quick Look at the Numbers
Let’s say you earn $80,000 a year and decide to salary sacrifice $10,000 into super.
- Without salary sacrifice: You would pay 30% tax on that $10,000, leaving you with $7,000 after tax.
- With salary sacrifice: The $10,000 is taxed at the concessional super rate of 15%, leaving $8,500 in your super.
In this example, you’ve saved $1,500 in tax while growing your retirement savings—an immediate win for your financial future.
How to Start Salary Sacrificing Into Super
If you’ve decided to boost your super with salary sacrifice, here are the steps to get started:
- Calculate Your Contribution
Decide how much of your income you’re comfortable sacrificing. Tools like online super calculators can help you plan. - Speak With Your Employer
Discuss setting up a salary sacrifice arrangement. Most employers offer this option, but it’s essential to confirm. - Check Your Super Fund
Monitor your super fund to ensure contributions are being made correctly, including your employer’s SG contributions. - Seek Financial Advice
If you’re unsure whether salary sacrificing suits your financial goals, consider speaking to a financial advisor or accountant.
Take Control of Your Financial Future Today
Salary sacrificing into super is a powerful way to grow your retirement savings while reducing your tax bill. With automatic contributions and significant long-term benefits, it’s a strategy worth considering for anyone serious about their financial future.
Ready to get started? Contact DJ Grigg Financial today for personalised advice on salary sacrifice and how it can help you achieve your retirement goals. Our team of experts is here to guide you every step of the way. Let’s make your super work smarter for you!