NOTE: we do our best to share general resources so you can do your own research. When it comes to tax, this is personal to your investing and financial position. We are not a tax advisor, and don't have any information about your personal situation. When investing, there may be tax implications and you should get advice from a licensed tax adviser .
Have you checked in on your super lately? Maybe you’ve looked at it and put it in the “too hard” basket. Or you’re underwhelmed by your super balance and don’t know what to do next. On the other hand, you may have heard you can contribute extra to super , but you're wondering “How much super can I contribute?”
Good question. However, the answer isn’t as straightforward as you would hope. This article should help you find the answers you need and provide the guidance to lead you on the journey to growing your super.
Building a sizeable nest egg to live a comfortable retirement doesn’t happen by accident. But wouldn’t it be nice if you could just work your 9 to 5 and only worry about today’s needs? To know that your retirement savings are accumulating in the background without you having to lift a finger? You then retire (at whatever age you desire) and have this chunk of funds to see you through retirement.
Sounds good, right? Well, it’s not too far out of your reach. If you put the right strategy in place today, you could see a big effect on your retirement savings.
What should my employer contribute to super?
Contributions to your super account are not your responsibility alone. Your employer also plays a role in helping you grow your super. The super contributions made by your employer are called Superannuation Guarantee (SG) contributions and are required by law. The SG rate is the minimum amount your employer should be contributing to your super account. This rate is a percentage of your income, also known as ordinary time earnings. Your ordinary time earnings are what you earn for ordinary hours of work. So, that’s your standard pay plus:
- Over-award payments
- Commissions
- Allowances
- Bonuses
- Paid leave
For the 2023/24 financial year, your employer should be contributing 11% of your ordinary time earnings. This is subject to a cap for higher income earners . It’s a good idea to review your payslips to ensure you’re getting the right amount of super guarantee. You don’t want to miss out on this key source of growth for your retirement savings!
How can I contribute extra to super?
Relying on your employer contributions is likely not enough for you to reach your retirement savings goals. Your situation might be different and you might be a member of a defined benefit fund with extra employer contributions. If so, lucky you! If not, the good news is there are other ways you can contribute to your super. So, before figuring out how much super you can contribute, let’s consider the types of additional contributions you can make.
Over and above your employer SG contributions, you can also make:
- Salary sacrifice contributions – voluntarily paid from your pre-tax income through an arrangement with your employer. Side note: you might want to double-check your employer doesn’t count these toward their super guarantee obligations!
- After-tax contributions – making voluntary contributions paid from your after-tax income.
- Spouse contributions – if you receive very little income, you can choose to receive a portion of your spouse’s employer contributions.
Contributing extra to your super is one way to take more control over your journey to financial independence. Don’t leave the heavy lifting to your employer – no-one has your best interests in mind like you do! For more details on additional contributions, read our article on whether to contribute extra to super .
How much super can I contribute?
Now that we’ve covered how you can make extra contributions, let’s answer your first question: “How much super can I contribute?”
You may have read our article on how to calculate after-tax super contributions to work out what to contribute to meet your goals. Maybe you’ve used Pearler’s Financial Independence Calculator to figure out the specific amounts. That’s a great start, but before you get excited and pay these amounts into your super account, let’s check in with the law.
By law, there are limits on how much super you can contribute. The limits are called contributions caps and are based on the type of super contribution. There are two types of contributions:
- Concessional contributions (before-tax) – paid from your income before tax. This includes employer, salary sacrifice, and spouse contributions, plus other amounts specified by the Australian Taxation Office (ATO) . These contributions are taxed at 15% (a different tax rate applies for higher income earners ) in your super fund.
- Non-concessional contributions (after-tax) – paid from your income after tax. This includes any voluntary super contributions you make, plus other amounts specified by the ATO . These contributions aren’t taxed in your super fund, which means you could claim a tax deduction for these amounts.
At the time of writing, the concessional contributions cap is $27,500 and the non-concessional contributions cap is $110,000 per financial year. These caps increase from time to time in line with indexation.
For concessional contributions, you can contribute more if you have unused cap amounts from previous years, up to five years (carry-forward rule). For non-concessional contributions, you can contribute more now instead of in future years, for up to three years (bring-forward rule). So, you can contribute $330,000 in a financial year if you make no after-tax contributions for the following two years.
However, these are subject to specific age and total super balance requirements. You can find out more on the ATO website .
What happens if I contribute too much?
You now know how much super you can contribute, but sometimes, things slip through the cracks. After all, you’re only human. If you contribute above either of these contributions caps in a financial year, you may end up paying extra tax. If this happens, the ATO will let you know and tell you what your options are.
The ATO gives you a couple of ways to avoid paying extra tax:
- For excess concessional contributions, you have the option to withdraw up to 85% of the excess amount.
- For amounts above the non-concessional contributions cap, you can use the bring-forward rule mentioned above.
The ATO website provides great examples to demonstrate the impact and options available to you under different scenarios.
The best way to reduce your chances of paying extra tax is by being proactive to avoid contributing too much. Knowing how much super you can contribute is a good step. The next is to keep track of your contribution amounts by monitoring your payslips, superannuation balance, and transactions.
Your investing account isn’t the only thing that needs regular tracking, but if you keep on top of your super as well, it can work towards your long-term goals!
