Strategies to boost retirement savings for low-income earners

Here are four valid strategies low-income earners can use to boost their retirement savings for the future.

Under the co-contribution strategy, the government matches the non-concessional contributions made by a super member who earns less than $34,454 a year. Super members who earn up to $50,454 a year are eligible for a partial benefit. The maximum amount a low-income earner can receive is $500, and part thereof for those who earn up to a $50,454 in taxable income.

Even though members don’t receive the money until they lodge their tax return, it is a beneficial strategy to undertake, as it is essentially money for nothing.

Spouse contributions
The spouse contribution allows individuals to make a non-concessional contribution of up to $3000 to their spouse’s super account if the spouse earns less than $10,800. The contributing partner receives a tax rebate of up to $540 for the contribution. If a receiving spouse earns up to $13,800, the contributing spouse is then entitled to a portion of the $540 rebate.

Low-income super contributions
Individuals who earn less than $37,000 a year can use the low-income super contribution. The strategy is a rebate of contributions tax. For example, the employer of an individual who earns $35,000 must pay a super guarantee of 9.5 per cent of their salary ($3325) into the individual’s super fund. The fund is then required to pay 15 per cent tax on that amount, which equates to $498.75. That amount ($498.75) is refundable to the fund in the following tax year, thereby boosting the individual’s super and reducing their tax.

Super splitting allows individuals to split part or all of their super contributions into their partner’s superannuation fund. This boosts the balance of the receiving partner, who may have taken time out of the workforce for reasons, such as raising the children. The limits on super contributions remains the same ($30,000 or $35,000 a year) depending on the contributing partner’s age. Since 15 per cent of contributions tax is deducted, the amount moved to the partner’s super fund is 85 per cent of the contributions.

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