08 May Is Salary Sacrifice Right For You?
Is Salary Sacrifice Right For You?
Want to give your super savings a boost?Â Making personal contributions is one option to consider using your pre-tax income.Â Known asÂ salary sacrifice and it can be a very effective way of growing your super balance.
Boost your super and pay less tax
Salary sacrificing into super can not only help you grow your super savings but it can also provide you with favourable tax outcomes.Â Salary sacrifice contributions are known as â€˜concessional contributionsâ€™.
The contributions you make intoÂ super with your pre-tax income are only taxed at a maximum rate of 15%.Â With less tax applied to your contributions, you have more money to invest than you would if you were investing outside super. Â The end result is the potential for a bigger retirement nest egg.
The other key benefit of salary sacrifice is that it could reduce the amount of income tax you pay. This is because you only pay tax on your reduced salary, which may lower your marginal tax rate.
Is it right for me?
A salary sacrifice strategy isnâ€™t right for everyone. Â Generally speaking, you’re more likely to benefit from salary sacrificing if you pay a marginal tax rate of over 15%. Â For this reason, there is little benefit of salary sacrificing if you earn less than $37,000 per year.
Another important consideration is whether you can afford to receive less salary each month. Â For this reason, a salary sacrifice strategy is better suited to people who are already receiving income from other sources.Â Â Such as rental income from an investment property or dividends from a share portfolio.
Setting up a salary sacrifice arrangement
To set up a salary sacrifice arrangement you first need to get your employer to agree to pay some of your pre-tax salary directly into super. Â When negotiating with your employer be aware that salary sacrificing could result in a lower Superannuation Guarantee amount being paid by your employer because legally, salary-sacrifice contributions are employer contributions.
For tips on how to set up a salary sacrifice arrangement with your employer visit the ATOâ€™s MoneySmart website.
Work out whatâ€™s best for you
Before deciding whether or not salary sacrifice is right for you, make sure you know all the rules and consider the different ways to contribute more to super before you dive in.Â Keep in mind also the common mistakes people make when it comes to managing their Super.