For medical professionals, considering your superannuation plan early is particularly important. Investing in your own future and maximising your super is definitely achievable through some careful planning. Importantly, the earlier a plan is established, the more likely you are to achieve your goals.
Here are some key points on how to make organising your superannuation plan, a little easier.
Tax and your super:
It’s important to note, that the taxing of your super is far lower than that of your regular income. Smart and effective utilisation of this reduced rate allows the potential for a host of investment strategies.
In Australia the current tax rate on super contributions is 15%, yet upon reaching an income of 250k this increases to 30%.
Realistically, as a doctor you will be earning this range of income, once fully qualified, meaning you’ll be in an even higher tax bracket range. Fortunately, this also makes the strategy of regular additional super contributions more beneficial, due to the preferential tax treatment. There will also be tax benefits come retirement time, when you start drawing a pension from Super.
Next, salary sacrificing can play an important role. If, in a salary packaging agreement, you sacrifice a portion of your income in order to make extra contributions to your super, these contributions may be taxed at the lower rate. You’ll be benefiting by both reducing the tax payable by reducing your income, and importantly, additional contributions to your retirement fund.
Importantly, you must always be conscious of the contribution thresholds that relate to your superannuation. Planning out your additional contributions, in combination with your standard contributions of 9.5% is essential to avoid the punitive tax treatment of contributing above the threshold.
Early Contributions Are Key
A key issue with retirement planning and superannuation is that often it is only examined thoroughly by people aged 50 and over. Someone who began this process at 30 will have a significantly higher contribution period and as a result, an increased superannuation base for retirement. Early contributions mean that your money will grow at the rate of a super funds’ performance. They will protect you against the occurrence of any significant illness or disability that may render an early retirement, as well potential non-income producing years such as pregnancy.
The Super Contribution Cap
What this figure is for you depends on both your age and marginal tax rate.
The superannuation environment is one constantly shifting, it’s important to consult a financial advisor regarding the current situation. As of July 1st 2017, the concessional contributions cap became $25,000 for everyone. Before this, it was $35,000 for anyone 49 years and over, and $30,000 for the remainder of people. This new cap is indexed in accordance to average weekly ordinary time earnings (AWOTE) and then rounded down to the closest $2500.
Also notably, from July 1st 2018, you will be able to ‘carry-forward’ with you, any unused money from your concessional contributions cap. You’ll have access to this on a rolling basis for five years, beyond which they will expire. Please note: you can only carry-forward your unused concessional contributions cap if your total super balance at the end of the last financial year amounts to less than $500k.
There is a lot to consider in the realm of Super for your personal, financial circumstances. If you have any queries be sure to consult a financial advisor.