How much should I salary sacrifice into super? FHSS
By - lyfstuffz
At 55k pa (I'm assuming excluding super).
It would be tax beneficial for you to contribute at most $10,000 a year.
Well, anything you earn above $45k, you are taxed at 32%. Anything from $18k-$45k is taxed at 19%.
Anything that contributes to your super is taxed at a fixed 15%.
If you contribute $10k (55 - 45), then you're preventing it from being taxes at the 32% rate and it will instead be taxed at 15%, saving you 17% in tax.
If you contribute more than $10k, you will lower your tax rate below $45k. Although there is a difference between 19% and 15% I would argue it is not worth the trade off of not having access to the money.
I hope this makes sense.
TL:DR contribute as much as you can until you've reduced your taxable income to $45k (the lower tax bracket).
55 - 45 = 10.
Whoops. I had in my head 47k for some reason. Fixed. Thanks.
This is a great answer. I'd add that OP should be careful not to exceed the limit of $50k that can be released under the FHSS. Anything over this stays in super. So OP should contribute $10k per year for five years assuming their salary doesn't change. I'd also add that they may want to change their super to a more conservative option like cash, but only for these contributions and particularly for the contributions close in time to the home purchase date.
I thought the returns on FHSS contributions were based on some bond rate? So it doesn’t matter what allocation you have for your super.
Sort of. The "return" you get is the [shortfall interest charge](https://www.ato.gov.au/rates/shortfall-interest-charge-(sic)-rates/) (SIC), currently at 3.01%. The amount you have available to withdraw compounds according to the SIC. However, your super will likely not return a constant 3.01% per annum. If it returns more than this then the extra amount will remain in your super upon withdrawal. If it returns less than this then the extra amount comes out of the remainder of your super. Personally, for short periods of time to the purchase date, I prefer the safe approach of putting FHSS scheme contributions into cash. This will return less than 3.01%, which means I'll effectively be withdrawing a little bit more of my super than what I put in.
Good to see that they're now increasing it to 50k instead of 30k. This doesn't include my employers 9.5% super contribution right? It will just be my own.
That's correct. You can't include employer contributions. As far as I know, they haven't increased the $15k limit per year, so it will take at least four financial years now.
Thank you so much! Makes a lot of sense. Why do you recommend not going down further to 15%? What would be the disadvantage of not having access to the money if the goal is to max out returns.
However, going off 10k which you advised that would mean putting:
10k/12 months=$833.33 every month into my super right. Sorry for the questions I’m completely new to this 😊
You're welcome and good for you for thinking about this kind of thing. I'm the only one in my friendship group that salary sacrifices.
To answer you question...
Well, you would be maximising it initially, but it wouldn't make sense because of the cap. It's about the opportunity cost.
To me, maximising it would be reaching the $50k bonus by getting rid of the 32.5% tax bracket.
Let's say you contribute your $50k exclusively with income from the 32.5% taxed income. That's a saving of $8750 (50 000×(0.325−0.15)).
Let's say you contribute your $50k of a mix of half 32.5% income and half 19% income. That's a saving of just $5375. (25 000 × (0.325 − 0.15)) + (25 000 x (0.19 - 0.15)) .
Comparing between these two scenarios you're saving over 60% more money by only salary sacrificing up to that $45k salary bracket.
Can you see how much you save here? The reason you don't do it on the 4% is because you're wasting the limited $50k cap. Once you reach it, you're done.
Don't forget, when your salary increases, you can contribute more.
Just going to start with the caveat that I'm not a financial advisor and that a lot of this is constantly recycled advice from this sub.
If you have any consumer debt I'd get rid of that. Also, emergency fund of at least 3 months and maybe more is prudent.
Under FHSS you can withdraw $15k contributions per year up to $30k (and soon to be $50k under the new budget I believe) - minus tax on entry to super but plus earnings while it's in there. So I'd salary sacrifice at least 15k/year into super. If your employer pays the normal super guarantee rate for $55k wage you'd still have room in the $27,500 concessional cap to do more.
Whether you max out your super cap or invest the rest outside of super is really up to you. If you think you might need the money before preservation age, best you keep it where you can get your hands on it. Unless you're an extremely skilled investor, the tax benefits of super means it will almost certainly perform better than investments outside of super. So it's a calculated risk you take.
Do your parents have a home that has a bit of equity? If so, might be worth asking them for a parental guarantee now. Why? Gets you into the market now (even if as an investment property) and then you can pay it down straight away while getting benefits of appreciation.
I don't like the idea of waiting 4-7 years because by then, it may well be that you end up paying 50/100/200k more than what you would today