Wouldn’t it be wonderful if you could make extra contributions to your super without taking a hit to your disposable income? That’d be like having your cake and eating it too. If you’re still working and have reached the preservation age for your superannuation, the cake can be all yours.
There is a legislative framework called Transition to Retirement, which basically allows you to draw a pension from your superannuation benefits while you continue to work. What is really neat about this framework is that concessional contributions to super are taxed at a maximum of 15% (up to a cap).
This is where it gets technical. A concessional contribution to super is one that has not been taxed yet. For example, the super your employer contributes as part of the Superannuation Guarantee is pre-tax, and hence classed as concessional. Your employer can contribute more pre-tax dollars to your super, via salary sacrifice. So rather than paying your marginal income tax rate on those dollars, you are only paying 15% on that income, meaning you can put more money where you’d like.
So say you’re on a marginal tax rate of 47%. You’re losing 47 cents in every dollar you earn to the tax office. What if we took some of that income before you were taxed on it, and jammed it straight into super? You’d only be paying 15 cents in the dollar of that sum to the tax office. But then your disposable income starts to shrink on the horizon, and life starts to look a little bleak and boring without your disposable income to fund your quality of life. This is where the TTR framework comes into play.
If you have reached your preservation age then you can start a Pension income stream from your super. These pensions are either taxed concessionally if you are under 60, or are 100% tax free if you are 60 or older. So you can top up the lost income you’ve put away into super via salary sacrifice, grow your super, pay less tax, live comfortably and have your cake and eat it too.
The TTR Framework can be complex, and finding the right balance between sacrifice, pension stream and the taxman can be a daunting task. If this seems like something that might help you achieve your financial goals, please feel free to contact our experts on 02 8006 4625.