Investing for your kids’ future

Many of the people we work with are professional and executives with young families.

One of the re-occurring goals I hear is the desire to invest for their kid’s future. While the motivations can vary, the common theme is to be able to give them a leg up when they are in their mid-20’s.

Here are five options we recommend parents consider looking at:

Normalise investing

I encourage clients to hold a small amount of investments in their child’s name and invest with them. Get them involved. Show them the power of compounding. Show them that markets go up more than they go down.

The short-term tax consequences of investing like this are far outweighed by the long-term benefit of having a young child that understands investing.

Invest through Super

Quite a few people want to be able to hand over a lump sum to help their kids buy a house or start their own investment journey.

The most tax effective way for anyone to invest is through super. The downside to super is you can’t access your super until you meet a condition of release – age wise this is usually at 60.

If the timelines work out, the best way to invest money for your kids is to do it through super. Either through concessional or non-concessional contributions.

Buy investment properties through a Self-Managed Super Fund

Parents are always worried their kids won’t be able to afford to get into the property market in the next 20 years.

A solution is to setup a SMSF and use it to buy investment properties. If the timeframes work out, you could then sell this property when you are in pension phase meaning you would then pay no capital gains tax. This money could then be withdrawn and given to your kids.

Invest through Investment Bonds

Investment Bonds can be a tax-effective way of investing if you (and your spouse) are both high earners. If the timelines don’t match up with super, Investment Bonds are definitely worth considering.

This is a good way to cap the tax paid on your investment earnings at 30%.

Invest through an investment company

If you are a business owner, one of the favoured ways of investing is to do it through an investment company who is a beneficiary of the income generated by your trading company.

The benefit of this is you can pass on profit generated by your trading company and invest the funds before you pay additional tax.

For high income earners where you are paying 47% tax, you will be able to invest at least 17% more than if you paid the money to yourself, paid tax and then invested what was left. For business owners, this is even better than making non-concessional contributions into super!

We specialise in helping professionals and executives grow and protect their wealth so they can live their ideal life. If you would like to discuss how you could benefit from independent financial advice, book a chat via the button below or contact us on 02 6269 3339 or at team@constructwealth.com.au.