Investment for Child Education

Linvisible1 on 27/02/2024 - 21:53

Hey everyone,

I'm looking to invest for my kids' education (ages 4 & 2). After some online digging, I found two options that seem good, especially since we're in a higher tax bracket:

  1. The 'Insurance Bond': You put money in, wait 10 years, then can take it out tax-free for education. Easy peasy.
  2. Investing in ETFs through a trust and transferring to my child's name after they reach 18 or a suitable age.

The Insurance Bond option seems to offer steady but not necessarily high returns. Which means I can utilize my offset account for education savings.
On the other hand, the second option potentially yields better returns if I have got it right but may involve tax complexities.

I'm curious to know if forum members have tried the two options mentioned above or found any other clever ideas that worked well in terms of returns and tax implications.

Your insights and experiences would be greatly appreciated.

Thank you!!!

Financial

Comments

  • soan papdi on 27/02/2024 - 22:01
    +4

    Offsets are tax free. If you can, make a separate offset account for each kid and deposit money each week/month. When your loan is paid off, use that savings to begin investing. At current home loan rates, getting 10% or more (to account for tax on capital gains) returns consistently is difficult. Side effect is that you save on your own home loan too. This is what we are doing.

    The other option is to purchase ETFs of index funds in the name of the lower earning partner and just invest regularly. This is slightly more complicated at tax time but not too hard.

  • omguleh on 27/02/2024 - 22:35

    We have a mixture of cash and EFTs. Each month there’s deposits that go into both, more into the EFTs.

    Plan on holding the EFTs long terms, and the cash portion we can use for emergencies.

  • T-rex on 27/02/2024 - 23:12

    I’ve purchased etfs in my kids names through self wealth. Just need to make sure they don’t make over $416 in dividends otherwise they may be taxed very high rates. You can get around that by reinvesting dividends rather than taking a cash payout.

    • Rako on 27/02/2024 - 23:50
      +3

      That would be like saying bank interest is not taxable unless you withdraw it.

    • cloudy on 27/02/2024 - 23:52
      +1

      You can get around that by reinvesting dividends rather than taking a cash payout.

      are you sure?

      All my DRP comes up on etax when i do my tax return….

      • T-rex on 28/02/2024 - 08:30

        Ok have just checked, I was incorrect, the dividends even though re invested do need to be counted in years income. To avoid such issues I’d choose etfs that have low dividends ……so aim more for capital growth and not sell until child reaches 18 years old at least.

        • T-rex on 28/02/2024 - 08:34

          The negatives of this method is you can’t invest too much in fear of making too much in dividends. So would have to keep the portfolio for them relatively small.

    • SmiTTy on 28/02/2024 - 00:10

      Reinvesting dividends still means you make the income when it gets paid. The difference is they invest it for you (usually without brokerage fee) so you don't have to. But it's so incomeyou realise in that financial year

      You still have to keep track of all the paperwork. I actually think it's easier if you just pick a time and amount and invest it yourself.

  • Kenb0 on 28/02/2024 - 04:24
    +1

    Insurance bonds are a horrible option if you're looking for the best after-tax returns in your pocket. They should be known as "tax-paid"(at a rate of 30%, with no long term CGT discount) rather than tax-free. Most people are better off investing in their own name and getting the advantage of the long term CGTdiscount. Even taxpayers on the highest marginal tax rates will end up with more money in their pocket if they invest in their own name than through an insurance bond.

    See this link for more information: https://passiveinvestingaustralia.com/investing-for-children…

  • benwaffle on 28/02/2024 - 09:45
    +1

    Minor trust brokerage account
    Buy AFI units
    You can buy up to $1000 of AFI once a day @ $0 brokerage with CMC
    Turn on DSSP so no dividends (no annual tax returns, no costs to transfer ownership when kids turn 18)
    Wait for compounding

  • Tiredman on 28/02/2024 - 10:13
    +1

    I just bought Bitcoin for the kids (5 and 7) when they were born and leave it in a hardware wallet for them until University age. No ETFs are gonna get any management fees from me. Let's see how well this ages in ten years.

    • ihbh on 29/02/2024 - 13:43

      Let's hope the wife or someone else doesn't accidentally throw the hardware wallet in the bin.

      • Tiredman on 01/03/2024 - 17:26

        doesn't work that way. unless someone can throw the Internet and blockchain away, it will be fine. by then we have more things to worry about.

  • Dollar General on 28/02/2024 - 11:01

    What if when they turn 18 they no longer want to study?

    Keep the money, pay off your mortgage as quick as you can if you have one, invest wisely and build your wealth so when they turn 18 you can contribute to whatever it is they want to do in life

    • lgacb08 on 28/02/2024 - 13:45
      +1

      Then you got your caravan/boat

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