Superannuation is actually not that complicated
I HAVE had a busy week travelling around Australia talking about my new book, Superannuation Made Simple.
A question often asked is: "Isn't superannuation too complex for the average person to understand?”
The answer is a resounding "No”. Sure, there are complications for the wealthy, but for the average person it's actually very simple.
The essence of super is that is allows you to move money to an area where tax is just 15% on its earnings - this enables your money to grow faster than if you held it in your own name.
Once you reach 60 and retire, tax on fund earnings drops to zero and the income you are drawing is tax-free.
It's truly a money paradise.
Of course, there are restrictions to avoid abuse.
There are limits on how much can be contributed, combined with loss of access until you reach your preservation age, which is 60 for people born after June 1964.
There are two types of contributions - concessional, and non-concessional.
The former are made from pre-tax dollars, the latter from after tax dollars. Yearly limits are $25,000 and $100,000 respectively.
Concessional contributions suffer an entry tax of 15% provided your adjusted taxable income is under $250,000 a year.
Superannuation is a great wealth building tool. Think about a person aged 55, earning $100,000 a year who wants to focus on paying off their home loan by the time they retire.
The boss should be paying $9500 a year super for them, leaving them with the ability to contribute $15,500 more as a personal contribution. If they opted to take the $15,500 as take-home pay they would lose $6045 in tax - leaving $9455 to reduce the mortgage.
By contributing the money to super as a tax deductible concessional contribution they would lose just $2325 in entry tax, and have $13,175 available growing inside super where it could be withdrawn tax-free when appropriate to pay off the home loan.
This is just one of the many strategies discussed in the book.
It is available for $24.95 from most book shops or at www.noelwhittaker.com.au