Join our investing community

Saving for Kids Education

Discussion in 'Money Management' started by Red Ruby, 17th Sep, 2013.

  1. Red Ruby

    Red Ruby New Member

    Joined:
    10th Sep, 2013
    Posts:
    2
    Location:
    Geelong
    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?
     
  2. Pete Ramoza

    Pete Ramoza Active Member

    Joined:
    29th Jul, 2012
    Posts:
    40
    Location:
    Brisbane, Qld
    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.
     
  3. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    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%'.
     
  4. Blueeye

    Blueeye Active Member

    Joined:
    26th Aug, 2013
    Posts:
    27
    Location:
    Sydney
    Sorry, I don't understand Waimate. What do you mean in relation to the tax rate?
     
  5. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    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%".
     
  6. Blueeye

    Blueeye Active Member

    Joined:
    26th Aug, 2013
    Posts:
    27
    Location:
    Sydney
    Ok cool, I understand now! Thanks for your clarification!