Part 3 of our salary sacrifice series.
This is the last post in our salary sacrifice series so I decided to talk about something that can be a great concern to self employed people.
Superannuation is definitely one of those things that we all tend to put off, add it to the “I’ll do it later” pile or simply just set and forget. But even in our 20’s, super should be a major part of our overall financial plan. Putting enough time, effort and money into your super now can mean the difference between rice and beans or prime rib dinners in retirement. ( Maybe not to that extent, but you get the point)
Understanding super when you self employed can be confusing, but it is also crucial.
If you are self-employed or work as a contractor or freelancer, you need to think about super.
Why contribute to super
When you’re employed, it is your employer who will make contributions to your super, which accumulates until you retire. As we’ve discussed in the previous posts, these contributions, along with any returns, can then be used for a tax-free income after you retire. These contributions along with investment returns can then be used to pay you a tax-free income when you retire.
When your employed, your employer will be the one to make contributions to your superannuation on your behalf. When your self employed however, it then is up to you to do this.
Many self employed people will get paid for any work done, which means that once they stop working, they stop getting paid.
You can prepare for this long before that day comes though by putting a small portion of each pay into a superannuation account. Its a good idea to always check the details of your contributions with your tax agent.
When you work for yourself, its up to you to prepare for your retirement. You can do this by making regular contributions or lump sums less frequently, to suit your cash flow.
Benefits of self employed super contributions.
Their are some benefits that come with being self-employed and contributing to your super, apart from the obvious of saving and preparing for your retirement such as being able to claim a tax deduction for your super contributions. Similar to what we mentioned in our other super related post ( insert link) when you contribute up to $25,000 per year to your super before tax you receive the concessional contributions tax rate of 15%.
You may also be eligible for government contributions. If you earn less then $36,813 you may be eligible for a government contribution if up to $500. Making after-tax contributions to super to qualify for the government co- contribution can have some benefits and should be something to be considered.
Note: Make sure to supply your tax file number (TFN) to your super fund. If not, your super contributions will be taxed a further 34%, you wont be able to to ad personal contributions and it may be harder to keep track of your super.
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Disclaimer: I am not a financial adviser and this should not be taken as specific financial advice. This is general financial advice only. For specific advise tailored to your situation, I recommended seeking the advise of a financial counsellor.