Super vs Taxable: Where Should Your Next Dollar Go?

01 Two taxes, not one

Super beats a taxable account because it is taxed less at two separate points, not one. Most comparisons only count the first.

The first point is entry. A concessional contribution is taxed at 15% going into super instead of at your marginal rate — for Cass, 15% against 39%, so $1,000 of salary becomes $850 inside super or $610 in her hand. The second point is earnings. Inside super they are taxed at a maximum of 15% during accumulation and at 0% once the money is in retirement phase after 60; in a taxable account they are taxed at your marginal rate, every year, for as long as you hold the investment.

A "super saves you 24c per dollar" comparison captures only the entry tax. The earnings tax is the one that compounds. On a 7% return, a 39% taxpayer keeps about 4.3% after tax in a brokerage account against 5.95% inside super — and applied to a balance that is already larger because more of the original dollar survived the entry.

Over a long horizon those two effects multiply rather than add, which is why the gap ends up much wider than the headline contribution saving suggests, and why the answer changes with time rather than with income alone.

Source: ASIC Moneysmart — Super contributions

02 The concessional cap is the ceiling on the discount

The 15% rate applies only up to the concessional cap — $30,000 for 2024-25 — and that cap counts your employer's Super Guarantee, your salary sacrifice and any personal deductible contributions together.

For Cass on $145,000, Super Guarantee at 11.5% is about $16,675, leaving roughly $13,300 of usable room. Money above that either uses the separate after-tax non-concessional cap, which gets no entry discount at all, or goes to the taxable account.

That makes the real question two-tiered rather than binary. Up to the cap, super wins on both taxes and there is very little to debate. Above the cap, the entry advantage disappears entirely — a non-concessional contribution is made from money already taxed at your marginal rate — and only the earnings advantage remains. Super still usually wins over a long horizon on that alone, but the margin is much narrower and the lock is the same.

The cap also moves. The Super Guarantee rate has been rising, which quietly shrinks the voluntary room each year even when your salary and the cap are both unchanged. Anyone who set a salary sacrifice amount years ago and has not revisited it may now be closer to the cap than they think, or already through it.

Source: ATO — Concessional contributions cap

03 Worked example: $15,000 a year for 20 years

Run Cass's numbers — $15,000 a year, a 39% marginal rate, a 7% return, over 20 years — and super finishes well ahead, because both the contribution and the earnings are taxed less along the way.

Change the inputs to your own and watch the gap move. It widens with your marginal rate, because the entry discount is larger, and it widens with the horizon, because the earnings discount compounds. It narrows sharply for anyone near the 15% rate, where neither discount is worth much.

The calculator assumes the contribution is concessional and within the cap, which is the case worth modelling first — and the mechanics of getting money in that way are covered in Salary Sacrifice to Super: How Much Should You Do.

On the defaults above, the worked example shows: Super ends ahead by $28,223 — but it is locked until 60.

04 When the taxable account wins

The taxable account wins whenever you might need the money before 60. Super's tax advantage is real and it is bought with a lock: preserved until preservation age plus a condition of release, with no early access except in narrow hardship cases.

That is not a small caveat for someone in their forties. A house deposit, a career break, a business, a period of illness, a divorce — all are ordinary life events that arrive before 60, and none of them can be funded from super. Money that is 24c cheaper but unreachable at the moment you need it is not cheaper at all; it is a different asset entirely.

The honest framing is that these are not competing accounts so much as accounts for different timeframes. Super is for money you are confident you will not touch before 60. A brokerage account or offset is for everything else, and the tax you pay on it is the price of being able to use it.

The common landing point is not a choice between them: salary sacrifice to the cap for the long-run money, and invest the remainder in a taxable account for the flexible money. Almost nobody's correct answer is 100% of either.

Source: ATO — When you can access your super

05 Franking credits narrow the gap — but don't close it

One genuine point in the taxable account's favour is franking credits. Fully franked Australian dividends carry a credit for the 30% company tax already paid, which offsets your personal tax and can be refunded in cash if it exceeds what you owe.

Held outside super at a low personal rate — a retiree with modest taxable income, or a partner who does not work — a franked-dividend portfolio can be genuinely tax-efficient, and in some cases more so than the same holding in accumulation-phase super.

But the same franking credits work inside super, and work harder. Against the 15% accumulation rate the credit more than covers the tax and part is refunded into the fund; in retirement phase, where the rate is nil, the entire credit comes back. So franking improves both sides of the comparison, and improves the super side by more.

What it does is narrow super's lead for income-focused investors rather than reverse it. The place it genuinely changes the answer is for someone whose personal marginal rate is already at or below 15% — a low-income spouse, or a retiree living on tax-free super pension income — because at that point the entry discount is worth nothing and the earnings discount is worth little, and the flexibility of holding outside super costs almost no tax at all.

Source: ATO — Franking credits

06 The practical split most people land on

For nearly everyone the answer is not all-or-nothing, and the useful output is a sequence rather than a winner.

First clear any high-interest debt and hold a cash buffer, because both beat any investment return on a risk-adjusted basis and neither is a close call. Then, if you have a home loan, weigh extra repayments or the offset against super — an offset returns your mortgage rate, tax-free and guaranteed, which is a genuinely competitive after-tax return and one that stays accessible. Then salary sacrifice to the concessional cap for money you will not need before 60. Then invest anything above that in a taxable account.

What makes the sequence work is that each step is decided by the timeframe of the dollar, not by which account has the better tax rate in the abstract. Name when you expect to spend a given amount, and the account it belongs in usually becomes obvious: money for a deposit in four years does not go into super at any tax rate, and money you will not touch for twenty-five years should not sit in a taxable account paying 39% on its earnings every year.

Revisit the split when something changes the timeframe — a house bought, a business sold, children finishing school — rather than on a schedule. The allocation follows the plan; it is not the plan.

Source: ASIC Moneysmart — Super contributions

07 Side by side: what each account actually gives you

The two differ on four things that matter, and only one of them is the tax rate everyone quotes.

Read down the first column and super wins three rows out of four. Read the access row on its own and it loses decisively for any money you might need this decade. That single row is why the answer is a split rather than a choice.

Source: ASIC Moneysmart — Super contributions