Don’t Make This Mistake When Saving For Your First Home
Typically, the most significant goal for someone in their 20’s is saving to buy their first home. Given the difficulty of entering the market, you should be utilising every benefit available. The First Home Super Saver Scheme (FHSSS) is an unknown benefit that could save you thousands when setting up your life.
Choices like this, made early on, can be a defining factor relating to whether you have financial freedom down the track.
What is the FHSSS?
The FHSSS allows you to build a portion of your home deposit in the tax effective superannuation environment. Without confusing you all with the minutia of this scheme, by making additional super contributions (up to $15,000 p.a.), you can withdraw these funds (plus earnings) (up to $50,000) when purchasing your first home.
Additional contributions can be either concessional or non-concessional, however you are likely to benefit greater from making a concessional contribution. Although you are only able to withdraw the additional funds you have contributed, the tax savings received from making these concessional contributions will allow you to build a greater home deposit.
What does the FHSSS look like in practice?
Maximising this strategy on a salary of $70,000 p.a. would provide you with an additional $12,290 (after 3 years) that is able to be directed towards your first home. By making a concessional contribution, you are able to claim a tax deduction now that will significantly reduce your tax payable. When you look to utilise these funds and withdraw this benefit from super, the withdrawal amount will be added to your taxable income however have a 30% offset. Based on the $70,000 salary, this would be an additional $1,250 tax payable in the year you withdraw the FHSSS funds however the tax savings from previous years significantly exceeds this. The below graph shows the total benefit of using this scheme including the additional tax payable.
Using this scheme is really a no brainer.
Even if you will not be able to maximise these savings, making a contribution for one year will benefit you. The only catch with the FHSSS is that not many people know about it. Over its first 3 years in existence only 18,492 individuals took part in this scheme compared to the average 10,000 monthly loans granted to first home buyers over this same period.
Once you have withdrawn the funds from super there also isn’t a rush to purchase the property. You have 12 months to enter into a contract once you have withdrawn the funds and if you exceed this the government automatically provides a 12 months extension, allowing a total of 24 months to purchase your first home. The government has also made the withdrawal process as simple as possible through the myGov website.
With the increased difficulty of entering the property market for first home buyers, we should be using the benefits we have available to us. It’s a stressful period of your life, book a time to see your Altitude Adviser and you will be able to alleviate some of the stress.
Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd
ABN 95 617 419 959
AFSL 496178
The information contained on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Document.
