Heap of interest in compounding for young kids
I HEAR so much about compounding interest. Do you have an example of how I can start it working for my three young children?
An investment is said to compound when the earnings are left to grow and are not withdrawn as they are paid – this enables you to enjoy interest on interest. For young children, the best example may be opening an online interestbearing account with one of the major financial institutions. As the interest is credited monthly, they will be able to see for themselves how they are receiving interest each month on the accrued interest from previous months. I LOST my job a few months ago and will soon be on the age pension. I am single and own my own home. I have $146,000 in super which I will need to take as an account-based pension, which will be 5 per cent of the balance every year. The sum would be $7300 a year, making it $280 a fortnight. How will I be assessed? I have tried a few different calculators, but still can’t understand.
Money withdrawn from an account-based pension is not assessable to an age pensioner. The value of the super fund, which is the source of the account-based pension, will be deemed. For a figure of $146,000 the deemed income would be $154 a fortnight. You will find very simple deeming and aged pension calculators at noelwhittaker.com.au. YOU have written about using super contributions to reduce capital gains, but I’m not sure I know what to do in my situation. My husband and I bought a property two years ago and intend to sell it soon. The profit should be $100,000 in the bank after settlement. Would it be better to transfer the funds into our selfmanaged super fund? Would the contribution be classed as a concessional or a nonconcessional contribution? Would we still pay capital gains tax on the amounts that were put into super or only pay CGT on the amounts that are not put into super? Or do we pay CGT on the whole $100,000 and 15 per cent tax on amounts we put into super?
Be aware that net proceeds need not be the same as the taxable profit. There could have been capital expenditure, and purchase costs, which would increase the base cost and accordingly reduce the taxable profit. The most that can be contributed by each of you as a concessional contribution is $25,000 and this includes any contributions that may have been made for you by an employer.
The balance will be non-concessional contributions. Capital gains tax is calculated by adding the taxable profit to your taxable income in the year the sales contract was signed – so simply contributing money to super will not of itself affect the amount of capital gains tax you would pay. Capital gains tax may be reduced because deductible concessional contributions reduce overall taxable income.
Noel Whittaker is the author of Making Money Made Simple and other finance books. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au
Money withdrawn from an accountbased pension is not assessable to an age pensioner