Superannuation contributions come in different types, and understanding the distinction between concessional and non-concessional contributions is essential for effective retirement planning. Both types can help grow your super, but they are treated differently for tax purposes and have different limits.
Concessional Contributions
Concessional contributions are before-tax contributions made to your superannuation. These include employer contributions such as the Superannuation Guarantee, salary sacrifice amounts, and any personal contributions for which a tax deduction is claimed. Concessional contributions are generally taxed at 15% within the super fund, which is often lower than most people’s marginal tax rate.
There is an annual cap on concessional contributions, currently set at $27,500 for most individuals. Contributions above this cap may attract additional tax. Concessional contributions are a valuable tool for reducing taxable income while building retirement savings.
Non-Concessional Contributions
Non-concessional contributions, on the other hand, are after-tax contributions made from money that has already been taxed. This includes personal contributions for which no tax deduction is claimed. Since these contributions are made with post-tax income, they are not taxed in the fund when contributed, allowing the full amount to grow for retirement.
Non-concessional contributions also have an annual cap, currently $110,000 for most individuals. People under 75 may also take advantage of the bring-forward rule, allowing them to contribute up to three years’ worth of contributions in a single year.
The main difference is taxation: concessional contributions are taxed when they enter super, while non-concessional contributions are made from after-tax income and not taxed in the fund. Understanding these differences helps individuals optimise contributions, manage caps, and maximise retirement savings efficiently.
Getting your contribution mix right can make a meaningful difference to your retirement. Contact us to review your superannuation strategy and explore what’s possible for you.
