Bond – Investment Savings Bond
Saving for the future
- Do you want to build your wealth and pay less tax?
- Are you saving for your child or grandchild’s future?
- Do you wish to retire earlier?
An investment bond can help you achieve your long-term goals tax-effectively.
Investment bonds provide you with an opportunity to build your wealth over the long term in a unique tax environment by investing in a range of investment options that are managed by professional fund managers.
Dan Smith of Plan 2 Prosper says, “The great aspect about investment bonds is they suit a range of different investors: high income earners looking to minimise income tax or fund an early retirement, parents or grandparents wanting to save money for their children, or business owners wanting ownership flexibility and protection of their assets against the risk of bankruptcy.”
Investment bonds offer significant opportunities and advantages for many people. They may also be appropriate for those wanting estate planning flexibility when nominating beneficiaries.
Pay less tax now
For those on a high marginal tax rate, investing via an investment bond may allow you to minimise your taxable income and maximise your investment earnings over the long term.
“An investment bond may be an attractive alternative if you have an investment that does not qualify for the capital gains tax discount. This is because you would only pay a maximum rate of 30% on earnings within the bond, instead of a marginal tax rate of 46.5%, which could be a significant saving,” says Dan Smith.
“And it gets better, because investment earnings don’t have to be declared in your tax return unless you make a withdrawal within the first 10 years. Since there is no increase to your assessable income, there will be no impact on your social security benefits, your tax offsets or your ability to receive the government co-contribution,” adds Dan Smith.
Fund an early retirement
While superannuation funds are subject to preservation rules and are generally not accessible until you reach retirement age (between age 55 and 60), the savings in an investment bond can be accessed at any time.
Furthermore, in light of the concessional contribution caps being halved by the Federal Government, it will be harder for those with a higher income to contribute more into super via salary sacrifice. Therefore, an investment bond offers a good long-term investment alternative to accumulate wealth.
Estate planning advantages
A superannuation fund is limited to nominating ‘dependants’ as beneficiaries and may incur up to 30% tax for the release of super death benefits in certain instances. An investment bond, however, provides you with the freedom to nominate any individual, company or trust as a beneficiary in the event of your death. In addition, the investment earnings can be generally passed to a beneficiary without any further tax liability.
Save for a child’s future
Investment bonds allow parents (or grandparents) to build wealth for a child in the long term without the high penalty tax rates other types of investments may incur.
“Usually, when a parent transfers assets to a child under 18 years of age, these assets may be subject to penalty tax rates on the investment returns of up to 45% or 66%. By investing in an investment bond, tax is paid within the bond at a maximum rate of 30%,” says Dan Smith.
You can also set up a child advancement policy, which enables you to invest on behalf of a child less than 16 years of age, then transfer the ownership of the bond to the child at a nominated age without any extra tax liabilities.
Protect your assets
For those who run a small business, placing assets into an investment bond can offer protection against the risk of bankruptcy, provided you are not attempting to defeat creditors.
A financial adviser is the best person to work out if investment bonds are suitable for you.
Where to from here?
An investment bond can provide many advantages and tax concessions. To see if this strategy is suitable for you or if you would like more information, speak to your financial adviser or contact Dan Smith of Plan 2 Prosper on 07 49265 570.
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Dan Smith is self employed and is for many families their trusted Financial Planner based in Rockhampton. He has clients in various locations throughout Australia but predominately in Central Queensland and specifically the geographic area encompassed by the Rockhampton Regional Council.
This material is current as at January 2010 but may be subject to change. This information is intended to only provide you with general information and, while the sources for the material are considered reliable, no responsibility is accepted for any inaccuracies, errors or omissions. Before making a decision based on this information, you must consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain professional financial advice specific to your circumstances.
Dan Smith and Dancin Pty Ltd ABN 71 531 338 371 trading as Plan 2 Prosper are Authorised Representatives of GWM Adviser Services Limited ABN 96 002 071 749 trading as MLC Financial Planning, an Australian Financial Services Licensee, with its Registered Office at 105 – 153 Miller St, North Sydney NSW 2060