For most sole traders, there’s no employer quietly paying super into your retirement fund each payday. It’s all up to you – which means your super only grows if you make it happen.
The flip side is that you’re in charge: you pick the fund, the amount, and the timing. Here’s how to get it sorted.
Finding a fund
Already have a super fund from an old job? Happy with it? Brilliant! You can keep using it and skip ahead.
If you’re starting fresh, picking a super fund is worth a bit of thought because no two funds are quite alike. A few things to weigh up:
- Your appetite for risk – a higher-growth fund may involve bigger ups and downs, while a conservative one is more slow-and-steady growth.
- What the fund invests in – good to know if you’d rather your money didn’t prop up industries you don’t support.
- Fees – they can vary, so it’s a good idea to read the fine print.
- Insurance – many funds bundle in cover, so note the premiums and any exclusions.
Ultimately, you’ll need to choose a fund that suits your specific situation. The ATO’s YourSuper comparison tool lets you compare options side by side.
How will you contribute?
As a sole trader, there are a few ways to plan for super contributions.
If your earnings are fairly predictable, you can do what an employer would and set aside a slice of your income on a regular schedule. The current super guarantee rate of 12% is a reasonable benchmark.
If your income is lumpier, it’s usually easier to make lump-sum contributions out of your business takings whenever cash flow allows, rather than locking into a fixed amount you might not always have spare.
Alternatively, you can use Hnry Allocations for the best of both worlds! Hnry Allocations will forward a nominated percentage of your pay towards your super fund. Because it’s percentage-based, you’re never contributing more than you can afford. Easy!
Potential tax benefits for super contributions
Here’s where paying your own super can get rewarding.
Concessional contributions
Contributions from your pre-tax income – called concessional contributions – may be eligible for a tax deduction, up to $30,000 a year, and they’re taxed at just 15% inside your fund instead of at your usual income tax rate.
Priya’s a freelance photographer. She contributes $10,000 of her pre-tax income into her super this financial year.
Within her fund, her contribution is taxed at 15% rather than her marginal tax rate, and she claims the full $10,000 as a deduction on her tax return – lowering her tax bill while topping up her retirement at the same time.
That’s two wins for (literally) the price of one!
To claim concessional contributions, you’ll need to lodge a Notice of Intent form with your super fund before you lodge your tax return for that year – or by the end of the following financial year, whichever comes first. You’ll also need to receive a written acknowledgement back from your fund before you lodge your return. Skip the Notice of Intent and you may not be able to claim a deduction.
And if you don’t use your full concessional cap in a year, it’s not necessarily wasted – you can carry the unused amount forward for up to five years and use it later, provided your total super balance was under $500,000 on 30 June of the previous financial year (other eligibility rules can apply too, so it’s worth a check on the ATO website).
Non-concessional contributions
If you’ve maxed out your $30,000 concessional cap, you can still top up your super from your after-tax income. These are called non-concessional contributions. They aren’t taxed again inside your fund, and they’re generally capped at $120,000 a year.
Unlike the concessional cap, this one doesn’t roll over – it’s use it or lose it. That said, if you’re eligible for the bring-forward rule, you can bundle up to two or three years’ worth of the cap into one hit – handy if you’ve had a bumper year and want to get more into super while you can.
Be careful though – the eligibility rules get fiddly, so it’s worth a quick check on the ATO website before you commit.
Let Hnry sort your super
Paying yourself super is one more job on an already long list. The good news is that you can automate it with Hnry Allocations.
Set up a Hnry Allocation and we’ll set aside a percentage of every payment you receive and send it straight to your super fund. Easy!
Alongside your automatic super allocation, we’ll also:
- Calculate, deduct, and pay ALL your taxes, including your Income tax, GST and Medicare levy, every time you get paid
- Lodge your tax and GST returns whenever they’re due
- Manage and claim your business expenses
- Chase up late-paying clients (politely!)
- … and more!
For just 1% +GST of your self-employed income, capped at $1,500 +GST a year, Hnry will make it so you never have to think about taxes, ATO lodgements, and saving for retirement ever again. Join Hnry today.