19
January
2018

Investment Bonds

Why Investment bonds?

In the 70’s and 80’s an investment bond, also known as an insurance bond, was a very popular investment vehicle that went out of vogue as the popularity of the managed fund increased. But there is still a place for the investment bond and a few product providers have recently focussed on developing quality options in this space.

Investment bonds should be viewed as a tax structure as opposed to an investment choice, not dissimilar to Superannuation. Earnings within the bond are taxed internally and if withdrawn after 10 years are considered tax paid. There is a formula used to calculate the tax applied to any withdrawals from within the bond within 10 years.

This is particularly useful for children as they are penalised for all unearned income above $416pa with tax rates as high as 66%. The investment bond is a very effective strategy for investing on behalf of a minor as the earnings are taxed internally and not subject to these penalties.

Those with high marginal tax rates that wish to invest for the long-term but are unwilling or unable to invest in the super system would also benefit from a tax paid investment at the end of the ten year period.

Most investment bonds these days offer a reasonably wide range of investment options that should enable a satisfactory, if not perfect, investment portfolio in line with the goals and risk appetite of the investor.

In addition, the investment bond can be used as an estate planning tool. The investment bonds are subject to the regulations associated with the insurance act, and, as such the proceeds of an investment bond do not form part of the estate. Therefore, an investment bond can be used to ensure that a desired beneficiary inherits an asset. This can be useful in circumstances where the intended beneficiary may not be a close relative or it is likely that the estate will be contested. 

Furthermore, conditions can be placed on the inheritance.  This is useful if the beneficiary is a minor or perhaps not responsible with money. It is possible to set conditions on how the money will be received. For example; to delay lump sums until a certain age or date is reached or, to provide a regular income over a set period of time.

There are also bonds especially designed for educational purposes that allow for funds to be withdrawn from the bond to cover costs associated with a child’s education without losing the tax benefits.

 

The investment bond is another investment vehicle that in some circumstances may be very effective for helping you achieve your future financial goals. 

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services

Past:

  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State

Education

  • University of Western Sydney
  • Penrith High

About

As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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