Getting the jump on extra super contributions

Have you plans to contribute more to super in 2017-18? There are powerful arguments for beginning to make extra regular super contributions from early as possible in a new financial year.

The reality is that many of us wait until the final days of a financial year to decide whether to make extra concessional (before-tax) and non-concessional (after-tax) contributions. This often involves a last-minute dash to contribute by June 30 in any year.

Among the most-common arguments for contributing early in a financial year is that your money is exposed to chosen investment markets for the full 12 months ahead (and beyond) in a concessionally-taxed environment. (Most fund members, of course, make their contributions into widely-diversified portfolios.)

And the sooner your contributions are made, the sooner you are benefiting from investment compounding as you earn returns on past returns as well as on your (past and new) contributions. Compounding needs as much time as possible to produce its best results.

Yet one of the most-powerful arguments for contributing throughout a financial year is the discipline it demands.

Acting now upon a decision to regularly make extra contributions should help breakdown the inertia and procrastination that seem to get in the way of investors beginning to seriously plan and save for retirement.

And by not leaving your additional contributions until the last-minute, you should have more of an opportunity to carefully consider how much you should contribute to meet your long-term goals.

Keep in mind that the making of last-minute contribution decisions can lead to falling into such traps as your money not being credited to your super account in time to be included in your annual contribution caps. In turn, late contributions can lead to unwitting overshooting your caps in the subsequent financial year.

For employees, a smart approach is make arrangements with an employer to make salary-sacrificed contributions from early in the financial year – not well into the year. These concessional (before-tax) contributions would be in addition to any non-concessional (after-tax) contributions.

Under tax law, arrangements to salary-sacrifice super must be in place with an employer before the money is earned.

Many self-employed and investors eligible to claim tax deductions for personal contributions within the concessional contribution caps would make all of their contributions at the end of a financial year rather than throughout the 12 months. Understandably for small business owners, this would often have much to do with cashflow concerns.

Given such factors as your personal circumstances, it is worth thinking carefully about what are the best contribution options for you throughout the financial year.

Certainly, investment markets might turn down soon after you make a contribution but a diversified portfolio will spread your losses and your opportunities.

Ursula Boorman
Ursula Boorman
Ursula Boorman holds a Bachelor of Economics degree, a Diploma of Financial Planning and is a Certified Financial Planner. She has worked in banking and financial services since 1988. Ursula is particularly skilled in developing the financial strategies that enable clients to achieve their goals through her understanding of the way that superannuation, taxation and social security legislation interact with each other. Ursula is passionate about giving clients the confidence they need to take control of their financial situation and provides strategies to help them plan for their future.