When you’re self-employed, juggling the demands of running a business can leave little time for thinking about retirement. But don’t let the freedom and flexibility of being your own boss distract you from securing your financial future. Superannuation is just as crucial for the self-employed, and it offers some unique advantages.
Is super compulsory for the self-employed?
Unlike employees, who receive compulsory superannuation contributions from their employers, super is not mandatory for sole traders or those in partnerships. However, that doesn’t mean you should ignore it.
Why should you contribute to super?
- Tax benefits: This is a big one! Concessional contributions to super are taxed at a maximum rate of 15%, which is generally much lower than your marginal tax rate. This means you effectively pay less tax and keep more of your hard-earned money working for you.
- Compounding growth: The earlier you start contributing to super, the more time your money has to grow through the power of compound interest. Your investments earn returns, and those returns then earn returns themselves, leading to exponential growth over time
- Government co-contributions: If you’re eligible, the government may also make co-contributions to your super, further boosting your savings.
- Retirement income: Superannuation provides a tax-effective income stream in retirement, helping you maintain your lifestyle and enjoy your golden years.
Tax savings: A closer look
Let’s break down the tax benefits:
- Deductible contributions: You can claim a tax deduction for personal super contributions, reducing your taxable income and your overall tax bill.
- Lower tax rate within super: As mentioned, your contributions are taxed at a maximum of 15% (unless you are a high income earner) within your super fund, potentially saving you thousands of dollars in tax over your working life.
How to contribute to super as a self-employed person
- Set up a super fund: If you don’t already have one, choose a reputable super fund that aligns with your investment goals.
- Make regular contributions: Aim to make regular contributions, even if they’re small. Consistency is key!
- Consider lump sum contributions: If you have a surplus of cash flow, consider making lump sum contributions to take advantage of the tax benefits.
- Seek professional advice: A financial advisor can help you determine the most tax-effective contribution strategy and ensure your superannuation is on track to meet your retirement goals.
Don’t neglect your future
Being self-employed comes with many responsibilities, but securing your financial future shouldn’t be overlooked. By prioritising superannuation, you can enjoy the tax benefits, grow your retirement savings, and create a comfortable and fulfilling retirement.
This blog post is intended for general information purposes only and does not constitute financial advice. It is essential to seek personalised advice from a qualified financial advisor to ensure the information is appropriate to your individual circumstances.
