Saving for Kids Education

Hi,

What is the best way to save for your kids education, I have read that Investment Education Bonds with ING or IOOF are probably the best but don't know anyone that has done this.

Is it easy to set up?

 

We briefly looked at this a few years ago when our first child was born. Didn't end up doing anything as property was the key for us back then. From what I remember it would have been fairly easy to set up, a bit like a SMSF or a trust. There may be better options than this out there so I would do a bit of homework first and maybe talk to your financial planner.

 

Every education product I've seen is really targeted at people who lack the ability to save. If this is a problem you have, then it would really be to your benefit to address it beyond any education requirement. There'd be all sorts of benefits, one of which would be education funding.

The products I've looked at offer nothing but a structure and enforced discipline, frequently at expense both in terms of fees and flexibility. Beware claims of 'tax free' - usually means 'tax paid at 30%'.

 

Sorry, I don't understand Waimate. What do you mean in relation to the tax rate?

 

If an investment earns you $10, under normal circumstances you'd pay tax on that $10 at whatever your marginal tax rate is - depends on your income level but to put it in perspective note that you have to be earning north of $180,000 net before your average tax rate exceeds 30%

If an investment earned you $10 tax free (ha!), you'd keep the $10.

What these funds typically do is earn you $10, pay $3 in tax, and then hand you the remaining $7, upon which no further tax is due. It's a reasonable deal if your marginal tax rate exceeds 30%, but hardly anything to become emotional about. It's actually a really bad deal if you (or your partner) earn less than $37k (below which your marginal tax rate would be less than 30%).

But even if your marginal tax rate exceeds 30%, you have to balance up the benefit of the lower tax rate versus the downside of the rules and restrictions of these products.

I dislike them for their restrictions, but also because they frequently crow "tax free", when what they really mean is "tax 30%".

 

Ok cool, I understand now! Thanks for your clarification!