In superannuation there are two types of contributions
The Concessional contribution relates to before-tax contribution. This includes Superannuation Guarantee contributions and salary sacrificed contributions. Making a tax deductible contribution into superannuation will also count towards your concessional contribution limits. When you do put funds into superannuation as a concessional contribution you will be subject to a 15% contribution tax unless your income is above the $300,000.
The non-concessional contribution relates to after-tax contribution. This can relate to funds you have in a bank account.
Concessional Contribution Limits - 2014/15
For the 2014/15 year, the general cap, which is applicable to under 50`s have risen to $30,000. For individuals who are 49 years or above on the 30th June 2014, the concessional cap limits is $35,000.
Non-concessional Limits - 2014/15
If an individual is under the age of 65, the limit has increased to $180,000 and the bring-forward cap increased to $540,000. If you are above age 65, you can still make a non-concessional contribution into superannuation to a maximum of $180,000 each year, but you are not able to have the bring forward provision. Please note if you have previously triggered the bring forward provision, you will still have the remaining limit available to you. Important to note that if you are age 65 at the time of the contribution you must ensure that you have met the work-test rule.
If you contribute in excess of your concessional contribution, the excess contribution will be subject to your marginal tax rate plus an interest charge. Under the new rule you now have the choice of withdrawing the excess amount to fund potential tax bill and also receive a non-refundable 15% offset on the amount of the excess to offset the 15% contribution tax you may have already paid. The excess contribution will count towards your non-concessional contribution limit but will remain under the taxable component.
If you were to exceed your non-concessional limits the amount above will be subject to an additional tax of 47%. Please note that this may change as there are some proposals yet to become law.
Superannuation is more powerful if you start investing early, but it is never too late. Investing in superannuation is one of the most tax-effective ways to save for your retirement.
--> Earnings within the fund are taxed at a maximum of 15%.
--> Insurance premiums within superannuation may further reduce the tax payable.
--> Contributing to superannuation; you may be able to claim a tax deduction, tax offset or co-contribution.
--> Once you reach 60 years of age, any money withdrawn from superannuation is tax free.
--> for investors under the age of 60, income received from a superannuation retirement income stream may receive concessional tax treatment.
--> Having your money in super instead of other assets may improve your centrelink entitlements.
At Investlink Group recommending allocations between asset classes will determine whether or not our clients will achieve their required rate of return and thus meet the stated objectives. Determining which mix of assets is always a delicate issue and more so what to include in a portfolio is largely based on each investors time horizon and risk appeitie.
The most important consideration in choosing an appropriate asset allocation are:
--> What percentage will be allocted to each asset class?
--> Will there be a range of percentages allocted to each asset class to give us flexibility?
--> What asset class will be considered for selection?
--> What specific country will be targeted for asset selection and further, should the foreign currency be hedged or unhedged?
Let us assume that a client invest $100,000 and is considered a Balanced Growth investor. Given this risk profile, clients invested amount would be following (+/- 10%):
Australian Equities - $30,000 (30%)
International Shares - $30,000 (30%)
Property - $6,000 (6%)
Growth Alternatives - $4,000 (4%)
GROWTH INVESTMENTS - $70,000 (70%)
Australian Bonds - $12,500 (12.5%)
International Bonds - $12,500 (12.5%)
Cash - $5,000 (5%)
DEFENSIVE INVESTMENTS - $30,000 (30%)
An investor in this situation is expected to see volitality of 70% of their portfolio and looking for long term growth subject to short term ups and downs in their investments. Usually a client excepts this or suggest that they cannot digest 70% growth - volitality issues; in which case we prefer our clients to reduce thier risk profiling until they feel comfortable with the risk / return trade of.