For my clients who are still working, one of the most discussed topics is how much to put into superannuation each year. Without even thinking I always say “the idea is to target the maximum which in your case is $X”. While stating this limit does not actually help to make the cash-flow that is needed available, it does set a very clear goal.
A softer approach is to recommend they contribute “as much as possible” though this is much less encouraging, because as the financial year rolls on, money is spent on other things and super contributions become a lesser priority.
The other extreme of not putting in enough, is putting in too much, which can cause problems, though the superannuation system does allow avenues for genuine errors to be rectified without too much hassle. But it is still better to plan ahead to avoid any problems.
With 30 June only a few months away, it’s time to look at how much you have contributed and how you are tracking towards your limit to make sure you contribute as much as possible without exceeding the relevant limit. If you were under 49 as at 30 June 2015, the maximum concessional contribution for 2015/2016 is $30,000. If you were aged 49 or over as at 30 June 2015 the maximum is $35,000.
Just a reminder — concessional contributions are those made with before-tax dollars. These types of super contributions are possibly the most tax effective strategy in the Australia tax system. For most people, these contributions will incur 15% tax on going into super, which is less than the lowest marginal tax rate of 19%, so even for people on moderate incomes there is some tax saving.
At higher income levels, the tax savings can be substantial. For example, someone in the 37% marginal tax bracket contributing the $30,000 maximum, will save $6,600 in tax ($30,000 x [37%-15%]).
Therefore, if cash-flow allows then it is clear why the answer is always to target the maximum.