Taking advice your best option
SALARY sacrifice to super can be a highly effective way to increase your assets because such contributions lose just 15% whereas money taken in hand normally loses at least 31.5%.
However, a recent query from a reader highlights the fact that it is not always the best strategy. In this case he earned $31,000 a year and was considering making a salary sacrificed contribution of $1,000. The reader asked whether he would be better off making a non-deductible contribution of $1,000 so he could receive the government co-contribution.
If he salary sacrificed $1,000 a year to super the cost to his package would be $1,000 and the amount that ended up in super would be $850 after the 15% contributions tax.
Instead, if he made an after tax contribution of $1,000 as a non-concessional contribution, the cost to his package would be $1,200 but he would receive approximately $2,200 after the government co-contribution of $1,000 was credited to his account. Obviously the second option is a much better one for him.
I am a great fan of putting as much into superannuation as possible because you don't miss what you don't get, and you avoid the temptation of withdrawing any of it because you lose access until your preservation age which is at least 55. But, as the example shows, it is important to take advice to ensure that you work your assets as hard as possible.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org. Or follow him on Twitter @NoelWhittaker.