Raising children is one of the biggest expenses parents will incur and while love knows no bounds, it's prudent to prepare financially, whether this is for future education expenses or to give them a solid start in adulthood. However, investing for minors can be complex, particularly regarding tax implications.
Investment Options for Minors
Understanding Tax Considerations
• Child Tax Rates are designed to discourage parents from reducing their tax burden by investing in their child's name.
• Income exceeding $416 attracts punitive tax rates, reaching up to 66%.
• There are a number of exceptions including excepted persons and income, those with disabilities, employment income, lottery winnings and income from deceased estates.
Strategies for Tax Optimisation
• Use of Testamentary Trusts: Effective for optimising taxation on inherited assets.
• Use of Formal Trust Structures: May be effective for larger assets or complex financial situations.
Practical Investment Strategies
• Consider the income levels for potential investments and the tax implications for minors.
• Utilise a low-tax trustee
• Set up an investment vehicle including a trust or education bonds for tax efficiency.
• Dollar-cost average your investment. This will help smoothing market fluctuations and reducing overall investment costs.
• Make regular contributions. This will assist in the long-term growth of your investment portfolio.
Investing in your children's future requires careful planning and consideration. While the journey may be complex, the rewards of providing a solid financial foundation for the next generation are immeasurable. By navigating these challenges wisely, parents can maximise the potential of their children's tomorrow.
If you would like to discuss your family’s financial strategy please contact Simon at [email protected] or via (02) 4325 0884.
Simon Tarrant (AR: 001270872) is a Private Client Adviser at Morgans Financial Limited (AFSL 235410 /ABN 49 010 669 726). Simon is passionate about creating quality financial strategies that are tailored and customised to a clients’ lifestyle, financial goals and risk profile.
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