Should i pump more into super?

[virgo]

Hiya

Be forewarned:
A simple question (but may have a complicated answer!)

If one does not have a PPOR debt; should one either:

a) increase after-tax super contribution (non concessional super) OR

b) start to pay down IPs deductible investment property debt..

Note: these IPs already deliver positive cash flows; any further debt pay down will incur more tax at highest marginal tax rates.

Also already salary sacrifice to the max....

Also 5-7 years from retirement .

(if possible a simple maths example will greatly help)
tks a zillion

 

[Terry_w]

Only you can decide but Income from super can be tax free once certain age is met.

 

[Greg Reid]

Virgo,
Good position to be in, you have choices.
In large it will depend on what your retirement goals and lifestyle looks like and if you need a further asset base to help provide that. Non deductible super contribution, the question is what asset allocation?

If you needed to increase your asset base, you could possibly do both by using a SMSF, using leverage a little and buying an IP within that SMSF. It will not help your immediate tax position but could assist for retirement, either income tax free or sell CGT free.
Alternatively you could look at another IP negatively geared to balance out your overall yield a little more and buying well, increase your asset base.

Using a SMSF certainly gives an ability to contribute non deductible.
Another method some use is to upsize your PPOR, no CGT on sale but stamp duty cost but end asset is pension test exempt and CGT exempt.

 

[Anh]

How about doing a) and c) build up a share portfolio or index funds?

Cheers
Anne

 

[westminster]

are you 5-7 years from retirement AGE or 5-7yrs from retiring early. If you are nearing retirement age then personally I'd be pumping money into Super and keep the debt as is

 

[geoffw]

It also depends on whether Virgo is nearing retirement age or preservation age. There may be arrangements made on reaching preservation age before retirement, depending on circumstances. Seek advice.

 

[spludgey]

What am I missing? Where is option c?
Option c would be to increase your pre tax super contribution.

I'm assuming that your current tax bracket is higher than 15%, so it would probably make sense paying into it pre tax as opposed to post tax.

Personally, I plan retiring well before I'll be able to access my super and so I don't want to rely on it at all. But in your case it could make sense to pump as much into it as you can.

 

[Angel]

Remember you can only pay in a certain amount of additional super each year before being slugged high taxes. If you are already at that point, then my guess (I'm not a licensed advisor) would be to either pay down IP debt or sell one and dump the profit into Super as a one off. Phone the super company and you can ask lots of question there. Wish I had your dilemma!

 

[Vixs]

What am I missing? Where is option c?
Option c would be to increase your pre tax super contribution.

I'm assuming that your current tax bracket is higher than 15%, so it would probably make sense paying into it pre tax as opposed to post tax.

Personally, I plan retiring well before I'll be able to access my super and so I don't want to rely on it at all. But in your case it could make sense to pump as much into it as you can.

To quote the OP....
"Note: these IPs already deliver positive cash flows; any further debt pay down will incur more tax at highest marginal tax rates.

Also already salary sacrifice to the max...."

Depending on your age and as previously mentioned, whether or not your impending retirement age means preservation age or just an early retirement makes a difference.

If you'll be reaching preservation age soon and will be able to access your super then I would suggest you do a comparison of the effect on your net wealth of paying down the debt or making non-concessional super contributions.

You may find it is better for your overall position to retain the debt as the actual cost of interest payments might be ~2.5% after tax, while that money could go into super and earn 5-10% taxed at 15% on earnings until you start a pension. Once you reach preservation age you would again need to look at whether or not to retain the debt as long as your lenders will allow and keep as much invested in that 0 tax rate as possible, however it would depend on where you sat tax-bracket wise and what you planned to do with the property in retirement.

If you're not confident in your decision I'd speak to a financial planner.

As for the previous poster jumping straight to "Set up an SMSF and buy more property", that's a pretty quick conclusion to reach given the limited information on offer. Makes one wonder what % of your client base must get given that as a first option.

 

[virgo]

Hiya

Tks for your informative replies with the different viewpoints:

My (rather my hubby's) preservation age is 6 years away

I am quite happy with my asset base (mainly residential properties) of a few mil atm...

I am leaning towards putting extra cash into non-concessional super as i like another slice of my income to come from non-property and TAX FREE at 60 just adds cream...and Australian Super Industry Fund is doing fine thank you

My aim is 1 million super at 5% withdrawal at 60....as my junior school teacher wrote in my school report: Aim high you reach somewhere; aim low you land nowhere...

 

[Greg Reid]

To quote the OP....
"As for the previous poster jumping straight to "Set up an SMSF and buy more property", that's a pretty quick conclusion to reach given the limited information on offer. Makes one wonder what % of your client base must get given that as a first option.

While I have my own SMSF, I do not have many clients who use one. I do not sell them. Most posters on this forum are interested in IP's, so an option to buy an IP and leverage is using a SMSF in the right circumstances and from what Virgo indicated, it certainly seemed an option.
I first mentioned asset allocation, obviously using a retail or industry fund, the asset allocation options are generally limited to shares or fixed interest products. I did preface it with "if you need to increase your asset base".

There seemed little point in stating the obvious, paying down IP debt leads to a higher tax bill, already at max super contribution so what are alternatives? Virgo had stated two already. A SMSF is not a first option. In my view there should only be a limited group of people who a SMSF works for and an even smaller group that should consider leveraging with an IP in it.

Read into it what you will.

 

[spludgey]

To quote the OP....
"Note: these IPs already deliver positive cash flows; any further debt pay down will incur more tax at highest marginal tax rates.

Also already salary sacrifice to the max...."

Did I mention that I failed reading in primary school?

 

[virgo]

While I have my own SMSF, I do not have many clients who use one. I do not sell them. Most posters on this forum are interested in IP's, so an option to buy an IP and leverage is using a SMSF in the right circumstances and from what Virgo indicated, it certainly seemed an option.
I first mentioned asset allocation, obviously using a retail or industry fund, the asset allocation options are generally limited to shares or fixed interest products. I did preface it with "if you need to increase your asset base".

There seemed little point in stating the obvious, paying down IP debt leads to a higher tax bill, already at max super contribution so what are alternatives? Virgo had stated two already. A SMSF is not a first option. In my view there should only be a limited group of people who a SMSF works for and an even smaller group that should consider leveraging with an IP in it.

Read into it what you will.

Thanks Greg

I appreciate your input very much...it is always good to have different alternative viewpoints as one then goes into decisions with eyes wide open

I must admit i have an SMSF set up already....but for a totally different purpose...i am exploring it for in-specie contribution.