This article provides financial advice regarding the best investment options for a godson's future, considering tax implications and market volatility. It delves into the challenges of investing for minors, explores insurance bonds as a suitable solution, and offers guidance on managing cash reserves and utilizing bring-forward superannuation contributions.
A reader inquires about the best way to invest money for their godson's future, considering the punitive tax rules associated with investing for children. They are exploring two options: opening a trust account to buy shares or a traditional bank account. The reader acknowledges that accessing a large sum of money at 18 might be too young and prefers to have the funds available at 25.
They are particularly concerned about the high tax rates on child-owned investments, which can reach 66 percent on income over $416 per year. The article recommends investing in insurance bonds as the most suitable option. Tax on investment earnings within the bond is paid at 30 percent, eliminating further tax obligations on the annual tax return. Moreover, funds can be transferred to the godson free of capital gains tax (CGT) at a chosen time.Addressing the reader's query about managing market volatility, the article emphasizes the importance of long-term investment and maintaining at least three years' worth of expenses in cash. This serves as a buffer against potential downturns, preventing the need to sell growth assets at unfavorable times. The article clarifies that keeping three years' expenses in cash doesn't necessarily mean a savings account and suggests considering regular income sources like rental income and share dividends. The reader, at 71 with a substantial superannuation balance, seeks advice on whether keeping their accumulation account is beneficial. Considering their low income and minimal withdrawals from the pension account, the article suggests maintaining the accumulation account until they cease earning income. Lastly, the article addresses the bring-forward non-concessional superannuation contributions, emphasizing that notification to the ATO or superannuation fund is not required. The ATO will automatically reconcile contributions with the cap under the bring-forward rule.
Investing Children's Finances Insurance Bonds Tax Planning Superannuation Market Volatility
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