Grandparents, take note! There's a clever way to help your grandchildren secure their first home while also boosting your own age pension. This strategy involves a combination of superannuation system concessions and Centrelink's age pension means-testing rules, creating a win-win scenario for both generations. Here's how it works and why it's a game-changer.
A Smart Financial Move
Grandparents can contribute up to $10,000 annually, or $30,000 over five years, to their grandchildren's first home savings. But here's the twist: this gifting strategy can also increase their age pension. When grandparents gift money, it reduces their assets, which in turn lowers the impact of the asset test on their pension. For every $1,000 reduction in assets, grandparents can expect a $3 increase in their fortnightly pension, resulting in a 7.8% 'return' on their investment. This is a significant advantage, especially for those who don't receive Centrelink benefits.
Superannuation Savvy
Grandchildren can leverage the First Home Super Saver Scheme (FHSSS) to their advantage. Anyone can have a superannuation account, but minors require parental consent. The key is to make a personal voluntary non-concessional contribution to super, which then qualifies for the FHSSS. This scheme allows contributions of up to $15,000 annually, with a maximum of $50,000. These contributions can be either tax-deductible or non-tax deductible, but be mindful of the 15% contributions tax on concessional contributions.
Tax Benefits and Compound Growth
The FHSSS offers a unique tax advantage. When the time comes to withdraw the money, 85% of the concessional contribution is tax-free. The remaining 15% is taxable, but it comes with a 30% tax credit, effectively reducing the tax burden. For those earning up to $135,000 annually, the taxable amount may only incur a 2% Medicare levy. This tax-efficient structure ensures that the grandchild's first home savings grow efficiently.
A Long-Term Strategy
It's important to follow the rules precisely to access the FHSSS funds. If the grandchild never buys a home, the money remains in the superannuation system until retirement. This strategy not only helps with the first home deposit but also provides a potential financial boost for grandparents in their later years, making it a truly intergenerational financial planning tool.
