Superannuation Salary Sacrifice Agreement: A Comprehensive Guide
If you are an employee, you might have heard about the term “salary sacrifice agreement.” But, what about “superannuation salary sacrifice agreement”? A superannuation salary sacrifice agreement is an agreement between you and your employer to reduce your salary in exchange for additional contributions to your superannuation fund. In this article, we will discuss everything you need to know about superannuation salary sacrifice agreement.
What is Superannuation Salary Sacrifice Agreement?
A superannuation salary sacrifice agreement is an agreement between you and your employer where you agree to sacrifice a portion of your pre-tax salary to your superannuation fund. This means that the amount you agree to sacrifice will be contributed to your superannuation account before your employer pays tax on your salary. The advantage of this is that you will pay less tax, as the amount you sacrifice is taxed at the concessional rate of 15%, instead of your marginal tax rate.
How Does Superannuation Salary Sacrifice Agreement Work?
To set up a superannuation salary sacrifice agreement, you need to discuss with your employer about the percentage of your pre-tax salary that you want to sacrifice. Once you have agreed on a percentage, your employer will reduce your before-tax salary by the agreed amount and make additional contributions to your superannuation fund. This is considered a concessional contribution and is taxed at a flat rate of 15%.
What are the Benefits of Superannuation Salary Sacrifice Agreement?
There are several benefits of setting up a superannuation salary sacrifice agreement:
1) You can increase your retirement savings by contributing more to your superannuation fund.
2) You can reduce the amount of tax you pay as the salary you sacrifice is taxed at a concessional rate of 15%, instead of your marginal tax rate.
3) You can maximize your superannuation contribution limit. The current contribution limit is $27,500, and by salary sacrificing, you can contribute up to this limit, which can increase your retirement savings.
4) It`s a simple and easy way to save for retirement.
What are the Risks of Superannuation Salary Sacrifice Agreement?
While there are several benefits of setting up a superannuation salary sacrifice agreement, there are also some risks you need to be aware of:
1) The money you sacrifice is locked away until you reach preservation age, and you cannot access it earlier.
2) You might not have enough money in your take-home pay to meet your daily expenses, which can be difficult to manage.
3) If you exceed the contribution limit, you will have to pay extra tax on your superannuation contributions.
Conclusion
A superannuation salary sacrifice agreement is an excellent way to increase your retirement savings and reduce your tax. However, before you enter into an agreement, you must understand the benefits and risks. It`s essential to speak to a financial advisor to determine whether it`s the right option for you. With careful planning and the right advice, you can set yourself up for a comfortable retirement.
