How to manage your super while self employed

Working for yourself means you don’t have to make any contributions to superannuation, which makes it easier for people to neglect their future financial security.

And quite a percentage of self-employed people fall for that temptation. People working for themselves have low super balances compared with salary earners, reported The Association of Superannuation Funds of Australia in research from 2018. Many have no significant savings for retirement at all.

But there’s several compelling benefits, both for the future and in the present, that make superannuation contributions an effective tool for the self employed to manage their money.

The first of these is preparing for your future: being financially ready for life after work is critical to it becoming a positive new phase of life. How much you need to save depends on the lifestyle you want and if you’re single or a couple: research indicates an ideal amount is between just under $100,000 to just over $1 million.

“Having a clear picture of your retirement and financial needs really helps to reduce anxiety when compared with those people without a plan or clear idea for their retirement,” says smartMonday senior smartCoach Patrick Howard.

If this seems like a difficult issue to figure out then a financial adviser or a smartMonday smartCoach can guide you through the steps toward financial readiness.

But if you are on the path to being financially ready for retirement, what does it matter if you save in a superannuation account or another way?

““For one, what you contribute to your super (up to certain caps) is only taxed at 15%, often a lot lower than marginal tax rates,” explains Howard.

Those contributions (up to the $27,500 annual concessional cap) are not assessed by the Australian Taxation Office as being subject to income tax – so you’ll only pay the tax on super contributions.

There can be other tax advantages to super, depending on your situation, which you can read more about in our ‘How to save on tax this financial year’ article.

When managed thoughtfully, the self-employed can reduce the tax they pay on their income and save effectively for their retirement, working toward the security and peace of mind that entails.

The powerful benefit of saving your money in a superannuation account is that it is invested for you, according to the option(s) you choose, usually achieving greater returns than a regular savings account.

“For example, for our 45-year-old members, the smartMonday MySuper option has annualised returns of 8.7% for the past seven years (up to the end of January 2023). While there’s always ups and downs for investment performance, and past performance does not predict future performance, it shows the potential gains from investing in super over the long term,” says Howard.

You can contribute up to $27,500 a year to your super account at the ‘concessional’ tax rate of 15% – and that amount won’t count toward your taxable income. To make a contribution:

• see the ‘make a quick contribution’ box on your personalised homepage, which will display your unique BPAY details to make a contribution from your bank account

• OR obtain these details from your annual statement or by contacting us

• let us know if you’re intending to claim a tax deduction on your personal contributions for the year by completing a notice of intent to claim a tax deduction form.

You can also make contributions beyond the concessional limit, up to certain caps, but they have to come from your after-tax savings. And there’s a variety of other ways you can contribute to grow your super.