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 21: $10 Personal Contribution[/heading]
Even if you cannot claim a tax deduction, you can still make additional superannuation contributions.
If you make a $10 superannuation contribution and a tax deduction is claimed (by you or your employer), you pay a 15% contribution tax. So you end up investing $8.50.
If you don’t claim a tax deduction, you invest the full $10.
One of the major advantages of investing into Super is that the income the investment generates is taxed at a maximum rate of 15%. Where as, if you invest in your own name, you pay your marginal tax rate, which is 37% on an income of $85,000.
Look at the difference tax can make
Assume that you invested $10 per week into an investment that earns 7% p.a:
- If that investment was a Superannuation fund, you would net, after tax, 5.95% (7%, less 15% superannuation tax). After 20 years, the value of that $10 per week would accumulate to more than $43,000.
- Compare this to $10 per week invested into a managed fund, assuming you were earning an income of $85,000. This would net, after tax, 4.41% p.a. (7%, less 37% personal tax). After 30 years of saving $10 per week, the accumulated balance would be just over $32,000.
You would have accumulated $11,000 (35%) more by investing into Super where the tax is maximised at 15%, rather than holding that investment in your own name.
How does it work?
By lowering the rate of tax that you pay, you will have more money upon which to generate income and therefore grow it faster.
What do I need to do?
Not everybody benefits from Super so you need to see if it’s right for you. To do so, arrange an appointment with us by contacting Debbie on (02) 4941 6000.