Building your super

Building up super from your own money is generally an excellent investment, thanks to tax concessions and other government benefits. Getting started well before you retire is likely to be far better than a last minute rush a few years before retirement.

Check you can spare the money After you put it into super it must stay there until you retire. Weigh up the benefits of extra super against your other priorities, for example:

• paying off your credit cards or other high-interest debt
• saving up for a home, starting a family or education
• making extra payments on your mortgage
• building up other investments to draw on whenever it suits you.

Your own after-tax contributions

If you can spare the money, contributing from your after-tax income can really boost your savings.

Your super fund gets tax concessions, so you will usually save more by investing through super than by investing in the same assets outside super. Contributions from your after-tax income don't get taxed when your fund receives them.

Some employers encourage extra contributions by putting in extra money if you do.

The maximum amount you can contribute after-tax is $150,000 each year, or if you are under age 65 you can contribute up to $450,000 over three years. (i.e. $450,000 in year one then no contributions in following two years.) 

Co-contributions

If you make after-tax contributions and earn an income as an employee, you may also receive a government co-contribution based on your income and how much you contribute. Self-employed people are also eligible, subject to certain conditions.

If your total income is $31,920 or less, the maximum co-contribution is $1,000, based on $1.00 from the government for every $1 you contribute. Co-contributions reduce as your income increases, phasing out completely for total incomes of $61,920 or more. These income levels are for the 2008-09 tax year.

If you're eligible, the Australian Taxation Office pays the co-contribution automatically into your fund, based on your tax return and information received from your funds.

Salary Sacrificing

Higher income earners can benefit if your employer allows extra contributions from your pre-tax income, or 'salary sacrifice'. (If you're eligible to receive a government co-contribution, you may be better off making after-tax contributions.)

Suppose you earn $70,000 before tax and want to top up super. You 'sacrifice' $10,000 in salary, getting a 'new' salary of $60,000 on which there's less tax because there's less income. Your sacrificed $10,000 goes into your super with only 15% in contributions tax taken out. As a result, you've invested more money than by taking the same $10,000 in normal pay, paying normal tax and then investing what was left.

Negotiate these arrangements carefully with your employer. Make sure salary sacrificing won't reduce what your employer would otherwise contribute. Legally, salary-sacrifice contributions are 'employer contributions' which your employer may be entitled to count as part of the 'super guarantee'. Unless you agree otherwise, your employer may be entitled to:
· reduce their usual contribution by the total amount you salary sacrifice or
· pay a lower contribution based on your new 'reduced' salary.

The maximum amount your employer and you can contribute pre-tax in any one financial year is $25,000. You will have to pay tax at the rate of 31.5% on excessive contributions.

However, if you're over 50 years of age, or turning 50 before 30 June 2012, a transitional period, ending on 30 June 2012, allows you to contribute extra. Once you turn 50 (or if you're already 50 or older), you can contribute up to $50,000 in each financial year up to 30 June 2012 including the financial year during which you turn 50.

For example, if you turn 50 on 1 September 2009, you will be able to make $50,000 of contributions in the 2009-2010, 2010-2011 and 2011-12 financial years. This $50,000 limit will not be indexed.

Contributing for your spouse

You can claim a tax offset, up to a set amount, on super you pay on behalf of your spouse if they have a low or nil income. A 'spouse' includes another person who, although not legally married to you, lives with you on a bona fide domestic basis as your husband or wife, but does not include a person who lives separately and apart from you on a permanent basis. The Australian Taxation Office can tell you more.