Superannuation is probably one of those things that you know you should be doing, but for whatever reason you just haven’t gotten around to sorting it out properly
Don’t stress. That’s why we’re here. 😀
One of the things we often notice when speaking to self-employed people is that the benefits of super are often hidden behind complicated financial jargon.
So let’s have a look at some of the great reasons to do super, explained in everyday language…
...and broken down into 3 main parts: contributing, investing, and withdrawing.
CONTRIBUTING
Financial jargon: “Concessional vs non-concessional contributions”
Plain English benefit: “Pay less income tax”
Let's start with the contribution part. You see, lots of self-employed people don’t realise they can use their superannuation as a nifty way to slash their income tax.
How? Well the superannuation tax rate is generally 15%, versus the marginal tax rate which is 34.5% for the average self-employed Australian. So by stashing some money into super, the average self-employed Aussie generally pays less than half the tax on that money.
We’ve got an example that explains more HERE.
But – and this is the important part – it’s not enough to just pop some money into your super. You also need to know how to then claim those super contributions as a tax deduction come tax time (which the GigSuper app will help guide you through).
INVESTING
Financial jargon: “Superannuation is a tax effective investment wrapper”
Plain English benefit: “Paying less tax means your money grows faster”
Once your money is inside your super, it's allocated to an investment portfolio that you choose. And regardless of what type of investments you've chosen, the money earned on those investments also gets taxed.
But the great thing about tax on the investments inside your super, verses the ones outside of your super, is that – once again – you're generally looking at paying only the 15% tax rate, versus your marginal tax rate.
So for most people this means the tax man takes less of the money that you’ve got sitting inside super. And by paying less to the tax man each year, you leave more growing inside those super investments.
Compounded over your working life, this can really make a big difference to the size of your nest egg.
WITHDRAWING
Financial jargon: “Preservation age”
Plain English benefit: “Tax-free income in retirement”
Not only is super taxed at a lower rate, but when you get to retirement age and need to start making withdrawals, it’ll generally be tax free. Everyone’s financial circumstances are different, though, and it’s worth learning more about this on the MoneySmart website HERE.
Once you strip away the jargon, it becomes clearer to see how super means more than just ‘locking your money away’ until retirement.
