Advantages and disadvantages of salary sacrificing into super

Salary sacrificing into superannuation is a strategy where you agree with your employer to forego a portion of your salary in exchange for your employer contributing that amount into your super fund. This can be a financially savvy move under the right circumstances, primarily due to its tax advantages.

Advantages of Salary Sacrificing into Super:

1. Tax Efficiency: Contributions made through salary sacrifice are taxed at a concessional rate of 15%, which is likely lower than your marginal tax rate if you are a middle to high-income earner. For example, if your marginal tax rate is 32.5%, you effectively save 17.5% in tax on the money you contribute to super.

2. Increased Super Savings: By sacrificing part of your salary into super, you are increasing the amount of savings for your retirement. This can significantly impact the final amount you have accumulated by the time you retire, thanks to the power of compounding interest.

3. Reduced Taxable Income: Salary sacrificing reduces your taxable income. This can be beneficial if you are trying to lower your tax bracket or reduce the tax payable on your income.

Disadvantages of Salary Sacrificing into Super:

1. Reduced Take-Home Pay: Since you are diverting part of your salary to super, your take-home pay decreases. This reduction might impact your ability to meet current financial obligations or lifestyle desires.

2. Liquidity Issues: Money in super is preserved until you meet a condition of release, typically reaching your preservation age and retiring. This means you cannot access these funds to cover immediate or short-term needs.

3. Caps on Contributions: There are limits to how much you can contribute to your super at the concessional tax rate (currently $27,500 per year, including employer contributions). Exceedi

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Hi Anjali,

It’s probably worth spending some time googling this topic for an hour or two so you are fully across it rather than just getting a simplified answer on here which won’t give you the depth of understanding that’s worth having.

Given how important it is and the outcomes it can have, I’d definitely recommend investing the time to figure out what’s going to work better for your situation.

Sorry for the non answer, but that’s the truth.