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Superannuation Just Do it!
As we are nearly at the end of the financial year, I thought it appropriate to call on one of our Dental Practice Accounting and Consulting advisors for some insight into Superannuation for Principals, dental contractors or employed dentists.
It’s a huge area of concern with many benefits if approached correctly
Alison is a Director with the firm and joined Ecovis Clark Jacobs in 2003 when the firm she led merged with Clark Jacobs. With over 25 years of experience in public practice, Alison provides business services and tax advice to many small business clients, particularly in medicine, dentistry and law. Ecovis Clark Jacobs has more than 100 medical and dental practices as clients and Alison advises the majority of those practices on all matters related to their business and personal affairs. Alison also works with high-net-worth clients and is interested in self-managed superannuation structuring and advice.
Alison works extremely closely with her clients and emphasises cash flow planning and integrating business and personal affairs to maximise a client’s wealth-generating ability.
Super – Just Do It
Nike is big in our house. I hear “Just Do It” a lot from my kids. I use it on them when it comes to cleaning their bedrooms and doing homework! They love anything with a Nike logo, sneakers, slides, soccer boots, clothes, you name it. Last weekend we saw the movie “Air”. We thought it was about Michael Jordan, but it turns out it was about how Nike signed Michael Jordan, and their brand took off. I loved it, my son, not so much. Nike had a great brand, but breaking into the basketball market took thinking outside the box, planning and a great product.
It’s a stretch (I know), but superannuation is a bit like Nike basketball shoes.
Super is a great “product”. In fact, I think it’s the best structure for retirement savings. Nothing beats compounding investment returns and a low tax rate for good outcomes.
It would help if you planned to get the best outcome from superannuation. If you forget about it until you’re 50, you’ve missed an enormous opportunity for your retirement.
Sometimes you need to think outside the box and look for ways to make your super work hard for you.
For most people, superannuation will be their next most important asset after their home. You get to choose your own super fund, so here are the key things to look out for:
– Check your superannuation fund asset allocation and historical investment performance.
– The level of management fees – if you’re paying over 1.5% management fees, it will really reduce the long-term outcome for your super.
– Are you paying for insurance in your super fund? Do you need it?
Employers have to pay super to your fund at least each quarter. If you’re employed, you have 10.5% of your income going into super each year. In 2024 it will go up to 11%; by 2026, it will be 12%.
By comparison, if you work for yourself, you have no obligation to pay any super each year. You get a tax deduction when you pay super, but how much and how often do you plan? If you go for years without putting money into super, you’ve lost a huge opportunity to grow your super.
Planning tips to boost your superannuation balance
– Consolidate your super and only have one super account. Cut fees on multiple super accounts.
“Pay yourself first” As soon as you get paid, put some into super. Plan at the start of the year what your super contributions will be. If you leave it till the end of June to make a big contribution, you won’t easily have the cash available. Make the most of your $27,500 annual limit.
– Know your contribution limits. From 2019, if you have not used all the annual contribution limit, you can carry it forward. You can take advantage of carry-forward limits if you have surplus cash or want to take advantage of larger deductions for tax planning. Note you can only use carry-forward contributions with super balances of less than $500,000. Again, it’s all about planning to maximise this strategy and not miss out on it.
– Don’t pay penalties for going over your contribution limits. People exceed their $27,500 annual cap amount by not checking before year-end how much of the cap is used already. We see this when people have multiple employers and/or are self-employed. Also, check that claiming deductions for life insurance policies paid via a super fund doesn’t put you over the limit.
Thinking outside the box – how can you use your super to help you grow financially?
– Pay tax at 15% on investment earnings! Save for retirement in your super fund, not in your own name, for a future tax-free pension.
– Use your super money as a deposit to buy your surgery or practice building or other rental property.
– If you have a capital gain coming up, plan to use super contributions to help offset the tax.
– Get a tax deduction for your life insurance when paid from a super fund or super policy. Life insurance paid personally is not tax deductible.
– Maximise contributions to your fund at retirement by using the 3-year bring forward rules and proactively planning the timing of contributions.
– Get the government to help boost your family’s super balances using co-contributions and spouse contributions.
To discuss how you can use superannuation tax effectively, call.
Alison Lacey Director – Ecovis Clark Jacobs
Tel: 02 9264 1111
