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Helen Twose on KiwiSaver and you

KiwiSaver: Kickstart incentive for kids to join

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KiwiSaver account an excellent way to get children into savings habit and set them up for the future.

Photo / Thinkstock
Photo / Thinkstock

I'm considering signing my kids up for KiwiSaver, in part to get the $1000 kickstart but will also make regular contributions.

Hopefully it will set them on the right track for savings and investing in the future.

Aside from the kickstart are there any other benefits available to children?

What about when they start working?

Will they get the tax credits then?

"KiwiSaver is an excellent way to start your children's savings habit," said ANZ Wealth managing director John Body.

"It allows you to contribute as little or as much as you want into the account while your child is growing up.

"For those under 18 and outside the work force the main benefit for joining is the $1000 kick start.

"Once you reach 18 years old you become eligible for the Government annual contribution, also called the member tax credit," he said.

The member tax credit is worth an extra $521.43 each year and does not count as taxable income. To get the full member tax credit automatically you have to chip in at least $1,042.86 a year.

That's 50c kicked in by the government for every $1 you contribute up to the maximum payment of $521.43 per year.

Lower income earners may fall short of the contributions needed to get the whole $1042, but it is possible to make a top-up payment directly to your KiwiSaver provider.

For example, if you earn $35,000 before tax and are contributing the minimum 3 per cent from your salary you would add $1050 to KiwiSaver over the course of the year and automatically get the $521 member tax credit.

But, someone earning $26,000 and paying 3 per cent would only make $780 worth of contributions. That would earn them $390 worth of member tax credit, but by voluntarily chipping in another $262.86 they could get an added $131.43 of member tax credit, taking the payment up to the maximum $521.

It's worth remembering for those over 18 who may only be working part time and not earning enough to get the full benefit of the member tax credit.

The member tax credit year runs from July 1 to June 30 so anyone turning 18, or joining KiwiSaver, during the year will have their member tax credit scaled back to reflect the number of days they have been a member.

"If you do start working before 18, contributions are deducted from your salary at the minimum rate of 3 per cent," Body said.

"Employers don't have to contribute until you are 18, but they can if they wish.

"The main benefit in setting up a KiwiSaver account for your children is giving them a head start in their savings and at some point they could be able to use some of the money in their account towards buying their first home."

Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the NZ Herald's panel of industry players email Helen Twose, helentwose@gmail.com.

- NZ Herald

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