Strategies to save thousands
An important role that Lime Super plays in improving your financial wellbeing is advising on strategies to take advantage of rules relating to contributions to super, withdrawals from super, account based pensions and the aged pension. Here are some examples.
Strategy 1 - contribute $1.2m to super tax free, save up to $16,000 tax each year
As you near retirement, you should be seeking to contribute as much to superannuation as possible. Anyone under the age of 65 can contribute up to $150,000 p.a. to super out of their after tax earnings. Some people over 65 are allowed to contribute too. In addition, you are allowed to bring forward future contributions and making a contribution of $450,000 this year, and no further contributions for the next 2 years.
Say you have just won $1.2 million in the lottery. It would be tempting to contribute $450,000 now. And if you are married, your spouse could also contribute $450,000. You may be better off contributing $150,000 each now, and then $450,000 each on 1 July the following financial year. That way you can contribute the entire $1.2 million into super as soon as possible.
What’s more, no tax is payable when you make this contribution or when you withdraw the money from your super fund. And while in the super fund you only pay 15% or less on your investment earnings.
For a married couple each earning $80,000 p.a., having your assets of $1.2m inside super will save tax of around $16,000 p.a.
Strategy 2 - pay your salary into super, save up to $6,000 tax each year
Suppose you have surplus cash which you won’t be needing until your preservation age (which is somewhere in your late 50′s, depending when you were born). Rather than pay your marginal tax rate (up to 46.5%) on this income, you can agree with your employer that it will be paid into your super fund and you will only pay tax of 15%. That’s a saving of over 30%.
Once again, You only pay up to 15% tax on investment earnings in the super fund, compared with your marginal tax outside super. This is often called a "Salary Sacrifice" strategy.
Strategy 3 - get money from the tax office for free
This is an extension of the Salary Sacrifice strategy and is called “Transition to Retirement”. From your preservation age (somewhere in your late 50′s depending on when you were born) you can start withdrawing money from super in the form of a Transition To Retirement Pension. You can withdraw up to 10% of the amount in your Fund each year and only pay tax at 15% on the amount withdrawn.
Of course your aim should be to put more into super, not to take more out. The amount withdrawn can be offset by a Salary Sacrifice contribution. You end up with the same amount in your pocket, and because the tax on the Transition To Retirement Pension is less than your marginal tax rate, you end up with more in super than you would have had otherwise. Or with a tweak you can have the same amount in Super and more in your pocket. Yes, believe it or not this strategy is entirely legal.
Strategy 4 - sell your business, save up to $300,000 capital gains tax
Planning on selling your business? Lime Super can show you how to roll up to $1.2 million into your super fund, tax free. Its a great way of funding your retirement and saving tax at the same time.
Suppose you are 64 and male, and your wife is 58. You own no assets outside super except for your home. You are about to receive $450,000 from a Trust distribution and contribute that amount to Super using the Bring Forward rule (described above). Rather than contribute this amount yourself, ask the trustee make the distribution to your wife (if allowed by the trust deed) and then she can contribute it to her super fund. Because she is younger than you, you will have a longer period where the money won’t count towards the Assets test. And that means a higher Age Pension.
Strategy 5 - optimising the age pension - save up to $15,000 each year
In conclusion - this is just a small sample of the strategies available to get the most out of your super fund. Any of these strategies alone can save you thousands of dollars each year. Bringing them all together can mean the difference between running out of money and enjoying the retirement you deserve.
Lime Super can identify the strategies applicable to your situation and help you put them in place to get the most out of them. You will potntially save tens of thousands of dollars every year.
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4 ways to save lots of tax
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