We often forget that it’s the little things we do over time that make a difference.
This series of $10 tips give some simple ideas which you can use to improve your financial affairs for the cost of only two cups of coffee a week.
[heading]Tip 17: Salary Sacrifice into Superannuation[/heading]
Question: When is $10 worth more than $10?
Answer: When you can invest it before you pay tax.
$10 per week after tax is equal to:
Pre-tax Equivalent Annual Income
$18.18 More than $180,000
Salary sacrificing gives you an opportunity to make pre-tax contributions into superannuation over and above the amount contributed by your employer.
The major advantage of salary sacrifice contributions is that contributions will only be taxed at 15% by the fund, as opposed to your marginal tax rate plus Medicare levy.
If your income is $50,000, you employer will be making superannuation contributions of 9.25% of your income ($89 per week).
If this was invested into a super fund that earns, after tax and fees, 5% per annum, it would accumulate to be just over $320,000 after 30 years.
If, however, you salary sacrificed $14.81 into super ($10 after tax) then your super balance would approximate $365,000 at the end of the same 30-year period – that is $45,000 from $10 per week!
How does it work?
Making contributions before tax may increase the lump sum available for investment; however, not everybody benefits equally from salary sacrifice and some people on lower income levels may actually pay more.
There are also significant penalties for exceeding your contribution limits.
What do I need to do?
Give Debbie a call on (02) 4941 6000 to arrange to talk to us and see if salary sacrifice would work for you.