Want to grow your super faster and potentially save on tax? Understanding the difference between concessional and non-concessional contributions is key. Both are valuable tools for boosting your retirement savings, but they work in different ways. Let’s dive in!
Concessional Contributions: The Pre-tax Powerhouse
Think of concessional contributions as the VIPs of the super world. They get special treatment – a lower tax rate – because they come from your pre-tax income. This means the money goes into your super fund before income tax is deducted.
What are they?
- Employer Contributions: This is the most common type. Your employer is required to pay a percentage of your salary into your super fund (currently 11.5%, rising to 12% on 1 July 2025).
- Salary Sacrifice: You can choose to have a portion of your salary paid directly into your super fund before tax is taken out. This reduces your taxable income, which can lead to tax savings.
- Personal Deductible Contributions: If you’re self-employed or have income from other sources, you can make personal contributions to your super and claim a tax deduction.
Why are they ‘concessional’?
Because they’re taxed at a lower rate within your super fund – a maximum of 15% (unless you are a high income earner and then it’s 30%, which is still good). This is generally much lower than your marginal tax rate, so you effectively pay less tax.
Non-Concessional Contributions: After-Tax Top-Ups
Non-concessional contributions are made from your after-tax income. You’ve already paid tax on this money, so it enters your super fund tax-free.
What are they?
- Personal Contributions: These are contributions you make to your super from your own savings or investments.
- Spouse Contributions: Your spouse can contribute to your super fund. This can be a helpful strategy for couples with different income levels.
- Inheritances: You can contribute an inheritance directly into your super fund.
Why are they ‘non-concessional’?
Because they’re not taxed when they enter your super fund, as you’ve already paid tax on this money.
Concessional vs. Non-Concessional: Key Differences
Which is right for you?
The best type of contribution depends on your individual circumstances, income level, and financial goals.
- Concessional contributions are generally a good option if you want to reduce your taxable income and take advantage of the lower tax rate within your super fund.
- Non-concessional contributions can be a good choice if you have surplus savings or investments and want to boost your super without affecting your current income.
Important Notes:
- Contribution Caps: Both concessional and non-concessional contributions have annual caps.
- Total Super Balance: There are also limits on how much you can hold in your superannuation fund overall.
- Seek Advice: Superannuation rules can be complex. It’s always best to seek professional financial advice to determine the most suitable strategy for your needs.
Maximise Your Super
Understanding the difference between concessional and non-concessional contributions is crucial for making the most of your superannuation. By utilising both effectively, you can potentially grow your retirement nest egg faster and enjoy a more comfortable 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.
