It is not uncommon to see owners of many thriving businesses devote all their financial resources, time and attention into their businesses at the expense of their personal finances. Often this requires accelerating efforts to boost their retirement savings at the back end of their working lives.
In our earlier blog we spoke about the recent changes to superannuation, specifically reducing the amounts that can be contributed each year. These restrictions make it more important than ever to establish a well thought out and consistent superannuation contribution strategy much earlier.
You can start boosting your retirement savings today by making contributions to superannuation where you can claim a personal tax deduction.
In addition, you could also be eligible to contribute after tax monies to superannuation. These contributions may be funded from surplus personal cash flows, an inheritance or asset sales e.g. investment property. After tax contributions are another way to turbo charge your retirement savings.
It’s important to remember there are limits to the amounts that can be contributed each year and eligibility criteria to be met. Money contributed to superannuation cannot be accessed until you meet a condition of release
Contributing business sale proceeds into super
We frequently see business owners reinvesting heavily into their business in order to maximise its value. The classic example is a business owner with a valuable business asset and relatively small superannuation balances.
The government recognises this reality and allows the proceeds from the sale of a small business to be deposited into superannuation in a tax effective manner (subject to certain criteria being met).
This can be a fantastic strategy to inject a large amount into your superannuation savings just before retirement. If you are relying on your business sale proceeds as a significant chunk of your retirement savings it’s important you have a realistic valuation in mind in the planning phase, and do all you can to maximise the sale value.
Choosing the right structure in consultation with your accountant can maximise tax planning opportunities and minimise risk, ultimately contributing to the financial success of your business.
Balancing act – How much to have inside and outside of super
The recent super changes have limited how much you can use to commence a superannuation pension with tax-free investment earnings ($1,600,000 each). Amounts over this cap will have the earnings taxed at up to 15%.
Additionally, if you are looking to retire before you are eligible to access your superannuation you need to ensure you have alternative sources of income.
For these reasons, it is important to get the right balance between the value and type of assets held inside and outside of the superannuation environment. This requires careful analysis and should be tailored to each person’s situation.
It’s never too early to plan for retirement.
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Please note that this is general advice only and should not be taken as advice specific to your circumstances. You should consider whether the information is appropriate for your needs and where appropriate, we recommend you seek professional advice.
About Acadia Wealth Advice:
Acadia Wealth Advice is a boutique financial advisory firm that specialises in providing advice to high net wealth individuals, busy professionals and business owners.
We help people translate their business success into personal financial results.
Learn more about we can do for you here.