We know…..not another article encouraging you to spend more money on your kids, yes you have already covered private school fees, now double degrees at university and yet we want you to spend more… though it could be in a tax deductible manner.
As you may well be aware there are now $1.6m limits placed on superannuation and a drop to tax deductible contributions to $25,000pa. At C&N we think its not a limit rather a target. Getting there as fast as possible is our aim (actually by 50 years old) such that your super can continue to compound for another 10 years before your retirement at 60 years old. With some prudent investing that could turn $1.6m into $3.1m all invested at 15% tax rate which reduces drastically in retirement even.
Turning our attention to our children, given that most do not earn very much in their early working life, there is little superannuation being contributed (9.5% of their earnings). Digging a little deeper, using AWOTE (Australian Weekly Ordinary Times Earnings), inflation of 1.5% and superannuation earnings of 4% your children could expect a measly $556,000 by age 65.
Pending your tax structure, you may be able to make tax deductible contributions for them potentially halving the cost, or forgetting tax, make a one-off contribution (non concessional).
The graph below shows what a one-off contribution of $50,000 compounds to by age 65 adding nearly $250,000 to their super balance. Better still $10,000 per year from 18 to age 40 adds a whopping $709,000.
Some additional benefits are the money is protected in superannuation until retirement, if the superannuation fund outperforms it still only faces a 15% Tax Rate or 10% on Capital Gains.
Get in touch with our office for further information and assistance if you believe your practice may need some assistance in this area (02) 4928 8500 or firstname.lastname@example.org.