Making super co-contributions on behalf of your children

One of the most frequent questions I am asked by clients is how I can best invest funds for my child or grandchild, where they will receive a good return but won’t be able to access it until they are mature enough to appreciate it.

It’s a hard question to answer as most strategies will impact on your child’s tax position and potentially attract penalty tax rates and it   is difficult to give a child money without them having control over it.

One strategy though once your child or grandchild starts earning money is to make a non-concessional contribution of up to a $1,000 a year directly into their super account.

In doing so you can take full advantage of the federal Government’s Co-contribution scheme where low-income earners who contribute after tax dollars to their super account will receive a co-contribution from the Federal Government.

While the rules are complex, if your child or grandchild is earning less than $49,293 this financial year and you contribute $1,000 as a non-concessional contribution into their super account, the Government will match it by contributing $500.

So that’s a guaranteed 50 per cent upfront return on your investment.

There is no paperwork involved. You simply need to make the contribution and once your child completes their annual tax return which shows their income is below $49,293 a year, the Government funds will automatically flow to their super account.

These funds will then sit in your child or grandchild’s super account accumulating earnings and capital gains along with the rest of their superannuation savings.

Importantly, these contributions can now be drawn down by your child under the government’s first home super saver scheme.

This scheme allows Australians buying their first home to withdraw 100 per cent of any personal non-concessional contributions to their super account, up to a total of $50,000.

For many parents and grandparents who want to support their children this is the perfect option.

The money is safely out of arms reach until your child or grandchild is old enough and mature enough to be thinking about buying a home and at that point it is available to them to use towards buying their first home.

As it involves superannuation there are some complex rules, so you should seek professional advice before you act but for many it will tick all the boxes in their efforts to help their child or grandchildren.