As we run quickly towards June 30 another year's opportunity for young people to utilise the First Home Super Saver Scheme is coming to a close.
The First Home Super Saver Scheme is very attractive for people saving to buy their first home. They can make voluntary super contributions, claim a tax deduction for them, earn a tax refund, then draw the money back out of super for their first home deposit.
The Scheme is under-utilised. We are conditioned to think that super is for the long term, for retirement, but this Scheme introduced several years ago allows people to withdraw voluntary super contributions they have made for a home deposit.
Combined with the tax-deductibility of contributions this creates a very beneficial arrangement enabling a first home deposit to be saved faster.
Intending first home buyers, and they don't have to be young, can contribute up to $15,000 per year to super as part of the Scheme. They can claim a deduction and earn a tax refund commonly equal to 34.5 per cent of the amount. Entry tax of 15 per cent is charged but they end up nearly 20 per cent ahead.
The net benefit means saving a home deposit sooner. Intending first home buyers can each put a lump sum in super right now, before June 30, to maximise the Scheme benefit.
The tax refund amount plus the net-of-tax contribution, about six dollars for every five compared to saving from after-tax pay, will then be available for the home deposit when needed in coming months.
People intending to buy a home in a few years' time can save via a smaller, regular salary sacrifice from their pre-tax pay to super every payday for several years. Those who have a lump sum available now can put that in and turn five dollars into six right away.
Where might a person saving for a home deposit get a lump sum? They may already have an amount saved up, maybe $5,000 or $10,000. Why not boost that via the First Home Super Scheme?
Many young first home buyers get financial help from Mum and Dad or family members towards their deposit. That money, up to $15,000 per person per year, can go into super now to access the accelerated saving.
If a person has income below the tax threshold the Scheme won't benefit them. People in the bottom tax bracket only gain a small advantage, but those earning over $45,000 per year gain the benefit of approximately six dollars for five.
Superannuation accounts vary in value, depending on investment performance. However the amount that can be withdrawn for a home deposit isn't affected by market movements and includes interest at a government specified rate.
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