New Child - Investment Account Guidance?

FrugalFranky on 13/03/2023 - 17:04
Last edited 13/03/2023 - 23:42 by 1 other user

Hi friends,

I don't post much but have learnt a lot from this forum. Here's one for you guru's. My wife and I just had a child, and I'm looking to setup an investment account under their name, that either can be withdrawn for their uni, or when they turn 25 (haven't decided yet what).

In Canada (where I'm from) the government has children investment schemes where they match contributions, I don't believe anything like that exists here?

I have an Aus investment account with Selfwealth basic ETF's (VAS, VDHG, DHHF etc) and come American blue chips for myself. I was wanting to do something similar for my kid in a separate account.

Any advice/thoughts/suggestions?

Cheers!

Financial

Comments

  • AustriaBargain on 13/03/2023 - 17:15
    +9

    Put three million into their super while you still can.

  • meowsers on 13/03/2023 - 17:30
    +2

    Move to NSW I hear you get 49k as part of the socialist scheme for future debtors - err taxpayers

    https://au.finance.yahoo.com/news/perrottet-offers-kids-up-t…

    • SBOB on 13/03/2023 - 18:28

      The "socialist" part isn't 49k.
      It's about 8k, disregarding drop in value of $400 each year over the course of 18 years.
      And assumes best case market interest gain, with a guaranteed interest gain about in line with current interest rates.

      But sure, socialist 49k ;)
      More vote buying desperation, but I think that's more a 'quality of our democracy' problem than anything

      • djones145 on 13/03/2023 - 19:27
        +4

        sound like hes setting up his kids for the furture. should have included it in the last budget

        surpised he doesnt have a condition if you have 7 or more kids the amount is tripled

        • SBOB on 13/03/2023 - 19:31
          +3

          sound like hes setting up his kids for the furture.

          sounds more like LNP with zero actual plan to work out solutions for things like housing affordability and education costs, but perhaps that's just me being cynical ;)

      • AustriaBargain on 13/03/2023 - 21:05

        I think it's probably more about encouraging population growth. We aren't having enough babies, anywhere near enough babies for the economic growth we want. The alternative is migrants. If you don't like the idea of being the only person on bus to work who was born in Australia (including the driver), then you shouldn't complain about any public measure which encourages current citizens to have children.

  • HeavenlyHammocks on 13/03/2023 - 17:39

    Selfwealth supports minor accounts. I expect you can connect it under the same login, or separate. ETFs is what I'd be thinking too.

  • Ocker on 13/03/2023 - 17:50
    +1

    Under the age of 18 you would need to buy in your name as trustee for the child.

  • Hellfire on 13/03/2023 - 18:11
    +3

    Kids get taxed at the highest rate to stop tax avoidance. Standard savings or investment accounts will rarely be worth it due to this. A popular trend is to park the money in the parents home loan offset account since that isnt affected by tax.

    There are trust schemes that can work. See your account to learn more and set one up.

  • macola51 on 13/03/2023 - 18:16

    You might also like to explore the option of investing in insurance bonds (aka "investment bonds") to see if they are suitable for your circumstances.

  • cashless on 13/03/2023 - 18:42

    Very noble & great idea! I did the same!
    Unfortunately the ATO/government won’t help you. Welcome to Australia!
    Be very careful buying investments in a child’s name. Firstly, the child will need a TFN & if they earn more than about $415 interest per annum they’ll pay tax at a huge rate (up to 60% from memory).
    There are ways to do this & avoid that ridiculous tax by buying them ETF’s for example, but you’ll need to have you/your wife named as the account administrator and your child as the beneficiary.
    There are very few places that explain this well, but I list three useful sites below.
    https://www.sellmyshares.com.au/information/buying-shares-ch…
    https://www.moneymag.com.au/buying-shares-for-kids-grandkids
    https://www.marketindex.com.au/buying-shares-for-a-child
    When your child reaches 18 you can do an off-market transfer across to an account in their name.
    Selfwealth is a good place to start as they now accept accounts for minors, as someone above said.
    You’ll need to file annual Tax Returns for your child.
    If you or your wife has a lower income & all the above sounds too hard, then just get the partner on the lower income to open a seperate account in their own name. The problem with that, apart from the discipline of doing it & transferring over after 18 years, is that there will be some CGT to pay during the transfer.

  • dcep on 13/03/2023 - 18:57

    Selfwealth … American blue chips

    Be aware that unlike CHESS-sponsored ASX stocks, their US stocks are held under custodian model via some company in Singapore.

  • GourmetFoodie on 13/03/2023 - 20:28

    If you have a mortgage, you're better off paying that that off first / putting it into the offset account.
    Then after that you may as well just buy an investment property as probably more tax effective our putting it into your own super.
    The govt really penalises savers here.

    • redfox1200 on 13/03/2023 - 21:34
      -2

      historically you are incorrect, you are better not paying off your mortgage, and investing in shares.

      • GourmetFoodie on 15/03/2023 - 12:14

        Except if one asset falls in value (your house) well you’ve still got a roof over your head and the likelihood of negative equity is low and you can negotiate with banks in worst case - but if the other falls (shares), you can’t even afford to keep the roof over your head and you’ve pissed that money away in the wind. The risk profiles are entirely different and you can’t even make the comparison.

        • redfox1200 on 15/03/2023 - 15:25

          Not sure why I am getting downvoted because people are financially illiterate?

          If investing additional funds in an index fund instead of mortgage and earning and extra 1.5 million or more over 30 years is pissing away money no wonder everyone is poor.

          • GourmetFoodie on 15/03/2023 - 17:54

            @redfox1200: The return comparison you are making is not factually incorrect to the degree that yes, you could have invested in a stock or index fund and potentially made more than the relative interest cost savings of putting money into your offset (effectively paying down your loan). What you have failed to account for is the different risk profiles which I tried to explain in my argument above. Finance 101 discusses the risk vs return relationship.

  • sund00bie on 15/03/2023 - 13:57

    Good on you for thinking of your Childs future.

    I set my son an account at https://www.vanguard.com.au/personal/. Started with a lump sum and contribute a small amount quarterly

  • MrMarket on 16/03/2023 - 10:40

    KISS - invest in your own name or throw extra money into the mortgage when the time comes you can pay for their degree or give them a deposit for a properties out of your own account.

  • nimbin2k on 18/03/2023 - 23:08

    Look into Investment Bonds (also called superannuation bonds), such as that offered by IOOF. After 10 years of investing, the product is 100% tax free and can be drawn down like a pension or separate income stream if required (or keep contributing).

    There are some rules though, such as only being able to contribute 125% of the previous years' contribution (default is monthly deductions, but doesn't have to be - contributions can be made at a certain level and topped up to the 125% of the previous year if you have the funds). Also, if you need access to contributed funds at any time (i.e due to emergency requirements) you can withdraw funds subject to paying CGT at staged rates up until the 10 year cut-off (i think within 3 years it's 66% of CGT, 33% after 6 years, 0% after 10 years) - this will reset the 10-year tax free status though.

    Investment bonds can be placed in the kids name, with a parent as custodian, and then set to automatically transfer into the childs' name at an age you choose between 15 and 25 years. They can also be bound to the child beneficiary I believe.

    I currently have 2 setup and about to set-up a third bond. No TFN or Tax lodgement required for the kids.

    These are legitimate products and they have been around before compulsory Super was a thing.

    Above is not Financial Advice - DYOR.

    • MrMarket on 19/03/2023 - 21:24

      Investment bonds is another name for insurance bonds it just another flavour of manage funds

      Investment bond is poor return, all they got to sell you is tax benefits, they never talk about the return and
      even after taken in the tax benefits and then management fee it will under perform

      mortgage offset account at 5%
      Most broad market index ETFs

      Investment bonds maybe a good option before the age of the internet and the arrival of cheap and low fees options like index ETFs

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