So this is one of my favourite strategies for those that want to give their kids something really special & long lasting, and it is so simple.
I wish someone had done it for me!
First off, did you know that a child of any age can open a superfund – they just need a tax file number?
Second did you know that if you put a lump sum in before they are 15 and invest in a growth option, then (all things being equal) your child will be able to take that same amount out each year (grossed up to future dollars) after they are 65 for the remainder of their expected life.
Would that have helped you in your retirement plans!
For example, lets say it is Little Johny’s fifteenth birthday today, and as a special present you open a superfund account, pop a one off $10k in it for him, tick the growth investment box and then forget about it. When he is age 65 he will able to withdraw the equivalent of $10k now in future dollars, every year for the remainder of his expected life.
The outcomes are pretty linear, so $5k today gives $5k (grossed up to future dollars) pa, $20k today gives $20k pa (grossed up to future dollars) and it works better the younger they are due to the effects of compounding. If a lump sum is out of reach then what about a regular monthly amount. Less than $75pm from age 5 to 15 will give you the $10k balance at age 15.
If you are going to save for your kids long term future anyway, this strategy saves tax as being in super the tax is 15% on income earned and generally 10% on capital gains, if you invested directly in the kids names outside super, as they are minors, everything over $416 is taxed at 49%. Yuck!
There are obviously risks – such as the money is tied up, legislation may change, markets might not perform, and you might fall out with your kids, but I am so keen on this strategy that we will set up superfund accounts for your (under 18) kids, nephews, nieces and grand-kids free of charge for our current clients.
Just give us a call
Lindsay 0413 952 180