Enjoy more freedom with your money, while minimising tax

You’ve worked hard for your money, why keep it locked up in superannuation? It’s natural to want freedom and flexibility in accessing what’s rightfully yours.

Like superannuation, an investment bond has favourable tax treatment. However, it comes with less stringent rules around when and how you can access your money.

In the first year, there’s no limit to how much you can put into the bond. This means investors can start with a significant sum, no matter your age.

Tax is paid within the fund (at 30%), which means it does not count towards your annual income or get declared in your tax return. The standard term is 10 years, but you can access your money before that if you need to (forfeiting tax benefits) or leave it in for up to 40 years.

“I don’t want all my money tied up in superannuation.”

“I want the flexibility to start with a large amount of money.”

Grow your wealth and create an income stream in retirement

As Andrew heads towards retirement age, he seeks a way to keep growing his wealth with the intent to create an income when he stops work. An investment bond is a long-term play for him.

Up until now, Andrew has focused on superannuation, meeting his contribution limits each year. However, he’s reluctant to continue adding all his extra cash to the fund.

What if he needs his money? What if he loses his job? What if his circumstances change? Or there’s an unexpected expense? He wants to explore other options where he can get to his money quickly if needed.

Andrew is keen to explore tax benefits. And fair enough: “I’ve paid my tax on the way in, why do I need to pay tax when I take my money out?”

An investment bond can work in addition to superannuation, without restricting access to cash

An investment bond is a good strategy for Andrew because it can work alongside his superannuation without restricting access to cash if—or when—he needs it.

Some of the beneficial features of an investment bond that support this strategy include:

• A 10-Year Investment Bond meant they could ring-fence money intended for their grandchildren, while continuing to grow it.
• A 10-Year Investment Bond means Andrew’s money is still earmarked for retirement, but with the flexibility to take it out if needed (with the understanding that he will pay some tax if it is before 10 years).
• There are no caps to the initial investment, so Andrew can add whatever amount he wants to begin with.
• He can continue to add funds each year, but no more than 125% more than the previous year.
• As Andrew gets closer to retirement age, he has the flexibility to change his investment profile to a lower-risk investment option.
• Investment Bonds are a tax-effective investment as tax is paid within the fund at 30% (less than Andrew’s current tax rate), so he won’t need to add to his taxable income each year (provided money is kept in the fund for 10 years).
• Andrew can access his money if needed. However, because his goal is retirement, he’s happy to keep it out of reach for 10 years.
• Because the tax is paid within the fund, Andrew doesn’t have to pay tax on the way out when he starts to create an income from the fund after 10 years.
• Once Andrew starts to withdraw funds after 10 years, he can adapt the amount he takes out each year and it won’t impact any entitlements he may receive.
• If Andrew keeps his money in the fund for the full 10 years, he effectively pays no tax on the earnings, as it is paid by the fund.
• Andrew is able to nominate a beneficiary to inherit his investment bond, knowing they won’t pay an inheritance tax on the way out.

This information is intended to be general in nature and was prepared without considering your personal objectives, financial situation or needs. Please consider the information contained in the Product Disclosure Statement and Target Market Determination before deciding to acquire the products. Please obtain independent professional advice from a qualified financial adviser, registered tax agent or lawyer before making any decisions. Past performance is not a reliable indicator of future investment returns. Tax laws may change in the future which may affect an investor’s tax outcomes. While all reasonable care has been taken in producing the information, to the extent permitted by law, Foresters Financial makes no representations and gives no warranties of any kind in respect of the accuracy or completeness of the information.

Financial services are provided by Foresters Financial Limited (ABN 27 087 648 842, AFS Licence No. 241421).