Question

In: Accounting

Jacob, who is aged 59, is reaching retirement. He has about $500,000 in his superannuation fund...

Jacob, who is aged 59, is reaching retirement. He has about $500,000 in his superannuation fund and would like to increase the amount in superannuation so that he could draw down a pension when he retires. Jacob’s annual salary package is $240,000 and he also earns income from a business he owns as a sole trader. The assessable income of the business is $80,000 per annum and it makes a profit of $45,000 per annum, which is included in Jacob’s taxable income. For the 2019/20 financial year, Jacob has decided to salary sacrifice the maximum amount for his age.

Is it worthwhile for Jacob to salary sacrifice $25,000? What are the advantages of salary sacrificing compared with making a contribution to superannuation from Jacob’s after-tax salary?

Solutions

Expert Solution

Yes It Is it worthwhile for Jacob to salary sacrifice $25,000 because-

Salary sacrificing is a pre-tax contribution from your income to your super account, so you'll have more money to enjoy in retirement. The amount you choose comes out before you are paid, reducing your taxable income and giving an immediate tax benefit. This approach makes it as painless as possible.

Contribution based on your income after the salary sacrifice has been deducted. This would reduce the amount that they pay to your super.After-tax (non-concessional) contributions are deducted from your salary after your income tax has been deducted.

The advantages of salary sacrifice are that you are buying the benefit in pre tax dollars.

Salary sacrifice reduces your taxable income, so you pay less income tax. 2 This can be much lower than the tax on investments outside superannuation. The compulsory superannuation guarantee contribution provided by your employer might not be enough to fund the retirement you want.


Related Solutions

Stan Eckhardt, aged 57, received a superannuation lump sum of $310,000 from his superannuation fund upon...
Stan Eckhardt, aged 57, received a superannuation lump sum of $310,000 from his superannuation fund upon retirement on 15 April 2018. PAYG tax of $28,170 was withheld from the lump sum. The lump sum comprised entirely of an element taxed in the fund. Stan also received gross wages of $85,000 up to the date of his retirement.  PAYG tax of $22,110 was withheld from Stan’s wages. Stan has adequate private health insurance. Required: Calculate Stan’s taxable income for the 2017/18 tax...
Jacob usually scored 65% of his shots. He has played for a while and is playing...
Jacob usually scored 65% of his shots. He has played for a while and is playing today. We test the hypothesis that his chance of scoring is still as good as before, at 66%. 1. Write the null and alternative hypotheses ??0 and ??1 2. What would the Type I error be? 3. What would the Type II error be? 4. If the data suggests that we should reject the null hypothesis, write the verbal conclusion in context.
Your friend has $1000 that he wants to invest toward his retirement in about 30 years....
Your friend has $1000 that he wants to invest toward his retirement in about 30 years. This will be his first ever investment. What is the best choice? A hedge fund A Treasury bill A mutual fund Two shares of Apple stock, which has a price of $500 per share In 1980, a stock with the ticker symbol "MBA" would trade on which exchange, the New York Stock Exchange (NYSE) or Nasdaq? How about in 2014? 1980 = NYSE or...
Jan is aged 45 and wants to know about funding for her superannuation when she plans...
Jan is aged 45 and wants to know about funding for her superannuation when she plans to retire at age 60. At the moment, Jan is single but has some prospects. She currently earns about $120,000 per annum and her employer will let her salary sacrifice to superannuation. As Jan's financial adviser, the first thing you need to do is calculate the amount she will need at retirement. Pat's current tax rate is 37% excluding the Medicare Levy (2%) and...
Pat is aged 45 and wants to know about funding for her superannuation when she plans...
Pat is aged 45 and wants to know about funding for her superannuation when she plans to reture at age 60. At the momernt, pat is single but has some propsect. She currentl earns about $120000 oer annum and her employer will let her salary sacrifice to super annuation. As pats financial adviser the firs tthing you need to do is calculate the amount pat will need at retirement. Pats current tax rate is 37% (2017/18) excluding medicare levy and...
A worker aged 35 wishes to accumulate a fund for retirement by depositing $1, 000 at...
A worker aged 35 wishes to accumulate a fund for retirement by depositing $1, 000 at the beginning of each month for 30 years. Starting at age 65 the worker plans to make 15 annual withdrawals at the beginning of each year. Assume that all payments are certain to be made. If the annual effective rate of interest is 6% during the first 30 years but only 4% thereafter, find: (a) the value of the fund at age 65. (b)...
QUESTION 3 Harper has $200,000 in her superannuation fund, and her fund is in the accumulations...
QUESTION 3 Harper has $200,000 in her superannuation fund, and her fund is in the accumulations phase. Harper’s employer contributes $10,000 during the year. The fund has distributed Harper’s $200,000 into various investments and makes a gain of $25,000 for the current financial year. This gain consists of $15,000 interest and $10,000 in capital gains from the sale of assets that had been held for more than 12 months. What is the tax payable for the superannuation fund for the...
A man wishes to provide a fund for his retirement such that from his 60th to...
A man wishes to provide a fund for his retirement such that from his 60th to 70th birthdays he will be able to withdraw equal sums of ₱18,000 for his yearly expenses. He invests equal amounts for his 41st to 59th birthdays in a fund earning 10% compounded annually. How much should each of these amounts be?
Luis has $100,000 in his retirement account at his present company. Because he is assuming a...
Luis has $100,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put $3000/quarter into the new account until his retirement 20 years from now. If the new account earns interest at the rate of 4.5%/year compounded quarterly, how much will Luis have in his account at the time of his retirement? Hint: Use the compound...
At 80, R.L. lives with his wife in a retirement community. He has always valued his...
At 80, R.L. lives with his wife in a retirement community. He has always valued his independence, but recently he has been having trouble caring for himself. He is having difficulty walking and managing his medications for diabetes, heart disease, and kidney problems. His doctor diagnoses depression after noting that R.L. has lost interest in the things he used to enjoy. Lethargic and sleepless, R.L. has difficulty maintaining his weight and talks about killing himself with a loaded handgun. He...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT