The tax-friendly way to save for school costs
Investment bonds offer families a simple, flexible and tax-effective way to save for their children's education.
We all want the best for our kids, and a quality education ranks as a high priority for many Australian families.
For families considering private education, planning ahead can make a significant difference to how those costs are funded. Many families will spend hundreds of thousands of dollars educating a child through a private school. Add technology, extracurricular activities, overseas trips and uniforms, and the total cost can be substantially higher.
That's why Generation Life is seeing more Australian families embrace investment bonds to save for their children's educations.
Investment bonds work in much the same way as a managed fund, plus they have important features when it comes to tax, simplicity and flexibility.
Tax paid after 10 years
Plenty of families get started with investment bonds as soon as they know a baby is on the way.
That makes sense, because investment bonds are most tax effective when the initial investment amount and its earnings are held for at least 10 years, while some additional contributions and transfers are still available.
After this point, withdrawals are free of any personal tax, including capital gains tax, in the recipient's hands.
That's a big advantage over opening a savings account for a youngster. Kids can face punitive tax rates of up to 66% on investments held in their own name.
Simplicity: spend time with the kids rather than on tax details
With investment bonds, the provider, let's say Generation Life, takes care of all the tax matters internally for the life of the investment.
It makes life very simple for busy families, especially at tax time.
For families juggling multiple investments, businesses or complex financial affairs, having the provider manage the tax internally can make education savings considerably simpler to administer.
Flexibility: because family life isn't set in cement
Plans can change over the decade or more it takes to save for education. A child may receive a scholarship, choose a different education pathway or study overseas.
That's where investment bonds can have a real advantage over 'education' bonds, also known as scholarship plans.
Unlike many education-specific savings products, investment bonds aren't restricted to school fees, giving families the flexibility to redirect the money wherever it's needed. This flexibility is very reassuring for families.
Generation Life investment bonds even offer the option to pay your child a fixed sum each month when they come of age.
This can make investment bonds a handy tool to help older teenagers develop sensible spending habits, or support the independence of children when they head off to university.
Each family has different needs and goals. A chat with your financial adviser can help you decide if an investment bond could help you save for your child's education.
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