High earning executives with surplus cash have options. While spending it on travel, cars and jewellery can be fun, if your goal is to boost your personal wealth, paying down personal debt, investing and contributing to your superannuation fund could be more productive.
In this article, I’ll explore your superannuation option and in particular using non-concessional contributions which can be as much as $110,000 per year.
Most people are aware they can make up to $27,500 per year in concessional (pre tax) contributions to their super fund. If you’re earning $250,000 or more, your 11% employer guarantee contribution has that covered. However, it is possible to contribute more.
In fact, if you have spare cash floating around you could contribute as much as $110,000 per year to your superannuation balance as non-concessional (after tax) contributions.
There are rules and reasons for and against it, so let’s begin with why you would consider contributing your surplus cash to super.
For starters, there’s a compelling tax saving. Even though earnings within superannuation are taxed at a rate of 15%, I’m sure you will agree it’s significantly less than the marginal tax rate many high earners endure. To illustrate the point, I’ve prepared this table to indicate the tax impact on $10,000 of earnings across different tax structures.
| Circumstance | Tax Rate | Tax on $10,000 income | Net Benefit Retained |
| High Income Earning Executive (or through a family trust where an executive receives a distribution) | 47%* | $4,700 | $5,300 |
| Company structure | 30% | $3,000 | $7,000 |
| Superannuation (Accumulation) | 15% | $1,500 | $8,500 |
| Spouse earning at least $18,200 but less than $45,000 | 21%* | $2,100 | $7,900 |
| Spouse earning less than $18,200 | Nil | Nil | $10,000 |
| Superannuation (Pension) | Nil | Nil | $10,000 |
*Including the 2% Medicare Levy
It is also possible to contribute up to $330,000 in surplus cash in a single year using the three-year bring forward rule, if you meet certain eligibility criteria.
This rule can benefit those who receive a cash inheritance and don’t need the extra cash. Naturally, once you’ve used this super contribution approach, it will restrict any other non-concessional contributions over that three year period.
You will also need to be aware of rules affecting your total super balance (TSB) as there is legislation pending that will restrict contributions for balances over $1.68M (as at 1 July 2023).
Compounding interest is another great reason for contributing surplus cash to super.
Even though it can be affected by market volatility, the growth on your superannuation account investments compound year on year and historically, this has been shown to grow super balances.
Super can also help high earners who may be undisciplined in their spending.
Contributing to super means you won’t be able access your money until you reach your preservation age.
So why wouldn’t you contribute your surplus cash to super?
The most obvious reason is not having access to that money until you reach your ‘preservation age’.
For anyone born after 1 July 1964, that means you’ll be 60 before you can get your hands on it again, but once you turn 65, or you retire after age 60, you’ll have access to all your super.
Depending on your circumstances there may be reasons to repay personal debt including a home loan or for investing in income producing assets such as shares or a rental property rather than paying surplus cash to super. You can read my earlier article about options for using surplus cash here.
When using non-concessional contributions to boost your wealth it’s important to be well aware of your cashflow AND your future plans.
As noted at the beginning of this article, when you have surplus cash you have options. And whether you decide to make non-concessional contributions to your superannuation or use it in some other way, making the most of your personal wealth opportunities and navigating the rules, usually involves getting qualified advice.
If I can help, please give me a call on +61 (0) 7 3007 2080 or email contact@executivestrategies.com.au to request a call back.
To learn more about James Marshall, visit this link.
Further reading:
Repay debt, invest or contribute to super
Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.
*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.
