If no contributions were made in the 2018–19 year, this year may be the final opportunity to add that extra $25,000 to superannuation and claim a tax deduction. Using carried forward concessional contributions can be highly effective in reducing taxable income particularly in years where income is higher than usual. This could be due to the sale of an investment property, receipt of a bonus or large capital gain from the sale of shares. Taking this opportunity to catch up on unused contributions can be a worthwhile boost to a super balance.

Maximising deductible contributions in the wealth building years is crucial to building a strong superannuation balance by retirement and can be very tax effective. When retirement is 15 to 20 years away, it can be difficult to see the benefit to locking away savings in superannuation. The benefits of a solid tax deduction and longer-term planning can outweigh these concerns where cash flow allows.

A disciplined contribution strategy should be a key part of the overall wealth plan during the high-income earning years. A high income doesn’t necessarily equate to wealth. It is rather the ability to save and then do something meaningful with those savings that will determine wealth.

Superannuation is the most tax effective place for wealth to be invested in retirement years, as earnings are tax free once a pension is established. Individuals can now have up to $1.9 million in a tax-free pension account (up from the previous limit of $1.7 million). A pension balance of $1.9 million equates to a tax-free income in retirement of $95,000 per year, based on a 5 per cent drawing from age 65.

A consistent and tax effective approach to building one’s super balance will ensure wealth can build throughout career years in the concessionally taxed super environment with that wealth then being well structured in retirement years.

For example, adding an extra concessional contribution of $5,000 to superannuation each year from age 40 could add $130,000 to super by age 60, assuming a starting balance of $200,000 and an average rate of return of 5 per cent after inflation at 2 per cent. It would also lead to a tax saving of $1,200 per year, which is a return of 24 per cent. In addition, that wealth would then be invested and earning an income over the long-term.