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Setting up a bank account for a bub

Discussion in 'Living Room' started by sandyfeet, 15th Dec, 2015.

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  1. sandyfeet

    sandyfeet Well-Known Member

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    hi all,

    2 months ago we welcomed our first child into the world - a healthy and beautiful little girl. We received a cash gift from family for Bub and thought that we need to open an account for her. It is likely that these family members will give cash gifts regularly. I would appreciate any opinions or guidance that relate to....

    - type of account to open up/institution
    - would you limit the cash that is put into the account? I have some concerns around a 7 yr old having $1000s of dollars in their account but I still want her to later learn about earning/saving/interest etc
    - how have you used an account for your child and been able educate them along the way?

    Thanks,
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    kids can only earn $416 per year and then are taxed at 66%
     
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  3. neK

    neK Well-Known Member

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    I would put all the money in the home (PPR) loan offset and keep track of it by way of description and spreadsheet. Decent risk free return.

    Realistically, by the time comes to give them the money, you'll probably end up giving them more than what accumulated anyway.
     
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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Nek's idea is probably better than opening an account on trust for the baby. a pretax return of about 5% is probably worth about 8% or more depending on your tax rate.
     
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hey Sandy

    Do you have a PPOR loan?

    If so - does your lender allow multiple offsets against the loan.

    If they do - I'd set up one for bub. It will save some interest on your home loan for the next 18 years and will be a dedicated account set up for this particular purpose.

    Congrats BTW! It's an exciting/testing rollcoaster of emotions time. My youngest girl is two months old too :)

    Cheers

    Jamie
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Jamie's idea even improves Nek's idea!
     
  7. sandyfeet

    sandyfeet Well-Known Member

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    Thanks neK

    That's pretty much on track with what I was thinking. I thought to maybe setup an account in bubs name and have a few hundred in it and any extra in our offset, keeping track along the way
     
  8. sandyfeet

    sandyfeet Well-Known Member

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    Great idea thanks Jamie, we don't currently have a PPR but similar effect against an IP I guess? And just transfer against future PPR, which we would have done with any offset cash anyway

    Congrats on your youngest! How many in your tribe? Certainly been a roller coaster but loving it all!
     
  9. sandyfeet

    sandyfeet Well-Known Member

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    @Jamie Moore we are Moore's too! A special breed shall we say!
     
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  10. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I've got three......and they're all girls. Definitely not going to try for a boy - I'm done! Bub just FINALLY went down. Fingers crossed for a good nights sleep :)
     
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  11. sandyfeet

    sandyfeet Well-Known Member

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    can you explain this a little further? Surely some kids bank more than $10 a week in pocket money - mum and dad aren't going to declare that?

    Or is the $416 limit interest earnt on the account?

    Or something else all together?

    Thanks terry
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    $416 pa. is the amount of income a child under 18 can earn tax free - other than from employment. I don't think pocket money will be taxed as income - it would be a gift.
     
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  13. Banister

    Banister Member

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    You might like to look at an insurance bond for tax effective investing for young ones
     
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  14. sandyfeet

    sandyfeet Well-Known Member

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    Will it be a problem to deposit the funds into our offset if it was a cheque made out to bubs name? Can we just provide birth certificate at the bank?
     
  15. sandyfeet

    sandyfeet Well-Known Member

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    Thanks banister,
    Never heard of these but will check it out
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Possibly can do as guardian, but you need to check with the bank. If not you may open account as trustee and then transfer.
     
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  17. neK

    neK Well-Known Member

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    Generally not a fan on these.
    If you look at the return, its a lower return for the same investment in a normal personally held investment structure.

    Also if you take it out before the 10 year period its not tax free.
    Also if you cannot make more than 125% of the previous year contribution without resetting the 10 year rule. eg if you forget (or can't due to financial reasons) make a contribution in year 5, you won't be able to make any contributions in year 6,7,8,9,10.

    Quite restrictive products in my opinion.
    Investment Bonds - Insurance Bonds
     
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  18. neK

    neK Well-Known Member

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    Do some modelling in Excel. I think it would work out better than any other investment - especially with its level of flexibility.
     
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  19. Arnoldus

    Arnoldus Active Member

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    Yeah, they're quite restrictive, but might be useful if you're on a decent rate of Family Tax Benefit and/or childcare benefit as any earnings it makes doesn't contribute to your taxable income.
     
  20. Banister

    Banister Member

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    The return of the managed fund would be the same irrespective of the structure the investment was held in. If the return is showing as lower I would guess that the after tax return is showed for the bond as tax is paid inside the bond. There are a numer of different providers out there with varying offerings. Yes they can be restrictive and may not suit.