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Saving for education

 

How can you make education costs more affordable?

A recent report* estimates the cost of raising 2 children from birth to when they leave home is $812,000. Education is a large part of these expenses, particularly for higher income families who may send their children to private school. Aside from school fees, there are regular expenses such as uniforms, equipment, and excursions that can affect your budget significantly, and with tertiary education these costs might be around for more than 15 years!

What you need to know

Putting in place a regular savings or investment plan as soon as possible is the key to making sure you can afford to give your children the education you have planned. There are a range of options available including:

Option Why invest Benefits

Consider this

Managed funds

Potential for long-term growth of your savings. You can start investing with as little as $1,000 and make regular investments each month

By adding to your investment regularly, you can build your investment over time and benefit from the affects of compounding

Be careful in whose name you place your managed fund investment. In some cases it is better to set up the investment in your own name rather than your child's, as children can be liable for higher tax rates (as much as 66% on earnings).

Investment bonds

Potential for long-term growth of your savings. You can start investing with as little as $500 and you can make regular contributions each month

If the investment is placed under your child's name and is held for more than 10 years, the proceeds from the investment bond will be entirely tax free.

Some tax liability may occur if funds are withdrawn in the first ten years.

A trust

As a parent or grandparent you can put money aside specifically for education purposes. The trust owns the assets so parents or guardians cannot access the money for other purposes

Testamentary trusts can be a tax-effective way to distribute your assets, as all beneficiaries are taxed at adult tax rates, regardless of age, rather than higher child rates.

Usually a testamentary trust 'runs out' after 80 years, so consider whether this time frame is acceptable for your needs and the needs of your beneficiaries.

Education funds

These funds are designed specifically to help you save for education costs

At Count, we don't recommend investing in education funds.

A lack of flexibility, limited investment options and the potential to incur high fees

Getting started

Regular contributions are key to saving for your child's education. Work out your budget and how much you can afford to save each month
Consider investing in your name rather than your child's name. In most cases, investing in the name of a child is inefficient for tax purposes, as penalty tax rates apply to 'unearned' income for people under 18.
It's important that you seek advice to structure your investments in the most tax effective way.

*"The cost of raising children in Australia", AMP. NATSEM May 2013.

Did you know?

Personal insurance gives you the peace of mind that you will still be able to pay your child's school fees if you are unable to work due to an accident or major illness.


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A Count adviser can help you:
Start saving for your children's future in a tax effective way
Put in place a regular investment or savings plan

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