Best strategy for parents of young children – with a home to pay off
YOUR ADVICE
WE are a family with four young children who will all be at school next year. We currently have $250,000 owing on our home loan and no other debt.
We have another 20 years before we retire.
One of our incomes is $135,000 and the other is $20,000. We are thinking of buying an investment property to reduce the tax on the higher income and have something for our kids’ future.
Our question is, is it better to buy an investment property for $500,000 or salary sacrifice into super?
Buying an investment property will save a minimum amount of tax in these days of low interest rates. I believe a combination of salary sacrificing to the maximum in the name of the highest income earner, plus using all spare money to quickly reduce the mortgage is the best option for you at this time.
Every year you can reexamine your position and adjust your strategy if needed. business is closing down) but she would like to maintain something like her current arrangement (a super pension and accumulation account) as she is likely to obtain shortterm work from time to time but also needs a reliable income stream.
I have heard that, since 1 July 2017, the tax exemption on TTR pension fund earnings no longer applies, although the pension benefit itself will remain tax-free as she is over 60.
If that is correct, should she convert her TTR pension into a normal super pension, as she will have satisfied a “condition of release”? In that case, can she also keep the existing accumulation account (which I know is still taxed on earnings) as a vehicle for future superannuation payments?
Yes, TTR funds have lost their tax-free status after June 30, but the income stream from the TTR remains tax-free for recipients aged 60 or over.
I agree that it would make sense for your wife to advise her fund that she has satisfied a condition of release and ask them to switch her fund to pension mode.
Her funds will then be in a tax-free area while she is drawing a tax-free pension. The difference between the treatment of pension funds and TTR funds is because a normal pension fund is used by retirees – a TTR is used by people still working.
A person cannot contribute to a pension fund but contributions can be made to a separate accumulation fund.