“What Should I Do With My Inheritance?”
My father recently died and I inherited $100,000. I am 56 and want to ensure that I make the best decision for the long term. Where should I invest the money?
Susie, Bundaberg, Qld
At 56, it’s likely that you’re enjoying the final decade of your career before retiring. If you have a mortgage, paying that down makes sense or you may wish to create a investment portfolio.
However, the best option may be to boost your super with both tax-deductible contributions (depending on your tax rate) and non-concessional (after-tax) contributions. If you are planning on working for another 10 years or so, your super contributions still have time to grow.
Making additional tax-deductible contributions could have a positive effect on your taxable income. For example, if your annual income is $100k, your marginal tax rate is 34.5 per cent, including the Medicare levy. The cap for these contributions is currently $25,000, so assuming your employer is paying 9.5 per cent super, you would be able to make another $15,500 pre-tax contribution. Topping up your super account by that amount would save you around $3000 in tax, as your assessable income would be reduced to $84,500. Make sure you check with your super fund on the steps you need to take to ensure that this contribution is treated as deductible.
In addition to tax-deductible contributions, you can also make non-concessional contributions which are personal contributions that come from money that has already been taxed. The annual cap for these type of contributions is $100k, but a bring-forward provision allows you to use three years of contribution caps (up to $300k) in a single year. This is helpful if you have more than $100k to invest.
Be aware, however, that if you make a $300k contribution this financial year (FY2021), for instance, you will have to wait until July 1, 2023 to make another non-concessional contribution. Also, if the non-concessional cap increases during this time, the increase won’t apply to you.
Factors auch as age and super balance may affect your eligibility to make these contributions, so always check with your super fund before you contribute. From time to time it’s a good idea to review your super to ensure you have the right asset mix and are paying low fees. The average super fee is around 1 per cent a year, so if you are paying higher than that, consider, switching.
By Kate McCallum, financial adviser and author of The Joy of Money; multiforte.com.au
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The information provided is general information and not personal advice. Tonic is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information we publish relates to your unique circumstances. Tonic is not Iiable for any losses caused, whether by negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by this website.
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