There’s no denying that having children can be expensive, especially when you factor in the spiraling cost of school fees. Research conducted by The Australian Scholarships Group (ASG), suggests that sending a child to private school from Kindergarten – Year 12, will set you back as much as $367, 569. It’s not surprising that for many young families, the thought of finding funds in the budget for education can be a daunting one – yet another expense to add to mortgage repayments, bills and endless living expenses. But with careful forward planning, it doesn’t have to break your bank account. The following strategies can help you get there.
- Invest in the name of the lower-earning spouse
If you or your partner works part time or not at all, chances are their marginal rate of tax is low. As a result, holding investments or savings in their name may be of benefit, for as long as their circumstances stay the same. Of course, you’ll have to reconsider this if they go back to work full time or their earnings significantly increase.
- Use an investment bond
Available from a wide range of companies, investment bonds or tax paid bonds provide a variety of investment options including shares, property and fixed interest, that are not normally available to minors.
As long as money remains invested for 10 years, the investment provider pays the tax on the investment earnings (at the company rate of 30%) so you don’t have to report the earnings in your tax return.
If you withdraw funds before 10 years, then you’d need to declare earnings in your personal income tax return (but you’ll receive a full credit for the tax already paid, so you won’t double up.)
- Saving in an offset account
Saving for education costs through your home loan is simple, but can be effective – if you have the willpower not to spend it. An offset account allows you to make extra repayments into a bank account attached to your home loan, and reduces the loan balance the bank uses to work out your interest payable. For example, if you have a home loan of $400,000 with $100,000 in an offset account, the bank calculates interest based on only $300,000.
The balance of your offset account generates a post-tax return equal to the interest rate of your home loan. This mean’s you’ll typically get a much higher rate of interest than what you would in a standard savings account. For example, if your bank charges you 5.00% interest on your home loan, the funds in your offset account save you the same rate.
- Set up a family trust
A family trust is a tax structure that allows you to distribute investment income to family members to take advantage of lower marginal tax rates. It can be a complicated process and is only worth engaging in if you already have a large sum of money available to invest. Specialist advice is required for set-up and there are compliance costs to consider.
Which is the best of option for you?
The answer depends on your situation and circumstances. For starters, think about how much money you need for education fees, how much time you need before you need to access the money and the most appropriate method of saving. Having a good financial planner is invaluable when it comes to helping you reach your financial goals and make smart decisions that with ensure your money works harder for you.
