Helen Twose
Helen Twose on KiwiSaver and you

Helen Twose: First tax credit tricky to work out

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Members turning 18 eligible for proportion of maximum entitlement depending on when their birthday falls.

"Members must be 18 or older in order to qualify for member tax credits, regardless of how much they contribute during the year." - Mark Fitz-Gerald. Photo / Supplied
"Members must be 18 or older in order to qualify for member tax credits, regardless of how much they contribute during the year." - Mark Fitz-Gerald. Photo / Supplied

Q: My son has been in KiwiSaver for over two years. He turned 18 recently. Is he eligible for the entire $521 at the end of June assuming he has paid in $1043 or is he only eligible for a portion of the amount from when he turned 18?

For example, if he turned 18 exactly on January 1 is he then only eligible for half of the $521 - so he will need to have paid in $521 rather than the full amount?

I rang Inland Revenue and after a prolonged consultation period they seemed to think he is only eligible for a portion of the $521.

Could you confirm this for me?

The KiwiSaver year runs from July 1 to June 30 and your son will be eligible for a proportionate amount of the maximum member tax credit from the month he turns 18, until the following June 30. This is provided that he satisfies other eligibility criteria.

The member tax credit works out to around $10 a week, so if we consider your suggested example then for the period from January 1 to June 30 the member will get around $260.

To receive this maximum entitlement a member needs to contribute at least $520 during the KiwiSaver tax credit year. That's $1 in member contributions for every 50c received in member tax credits.

KiwiSaver members turning 18 should also review their prescribed investor rate (PIR) and let their provider know before the beginning of the next tax year (April 1 to March 31) if it's changing, otherwise they may find that they are paying too much tax on their investment income which cannot be refunded, or not enough tax in which case they may incur penalties.

This will be the case if their overall income has changed.

KiwiSaver members who are working when they turn 18 will also be required to contribute at a minimum rate of 2 per cent of their salary or wages and will become entitled to compulsory employer contributions (both of these contribution rates are currently set at 2 per cent of a person's salary or wages, rising to 3 per cent from April 1 2013).

•Martin Lewington, head of Mercer New Zealand.

Q: My son is 13 and does not work part time. I have joined him in KiwiSaver and he has been in a growth fund for the past three years.

Does he still get the government top up of $521 each year provided we deposit $1043 in his account yearly?

No. Members must be 18 or older in order to qualify for member tax credits, regardless of how much they contribute during the year.

•Mark Fitz-Gerald, Westpac head of investments and insurance.

Q: My wife and I are over 65 and both have the minimum KiwiSaver started three years ago.

We are retired but not eligible for the Super for many more years (we have been permanent residents for six years and have been travelling oversees a lot and I understand the Super requires us to be permanent residents "in the country" for 10 years!).

Would it be a good idea to transfer our substantial nest egg into the KiwiSaver so that in six years' time, when we will need additional funds, we can draw a monthly amount to augment our living expenses?

Firstly, is this move allowed with KiwiSaver and secondly if it is allowed should it be done with large monthly deposits or the full amount up front.

I still have two years of contributions to make before I am able to draw down on our KiwiSaver.

To us it seems a good move as one can check on the progress of the funds daily; also we are able to draw down any amount weekly, monthly etc ... and all this time we are achieving better than term deposit rates.

It appears the costs are lower than any managed fund, because of the size of the funds and the growth (equity) portion is tax free! (If we chose the growth fund).

Irrespective of whether or not you qualify for NZ Superannuation, in terms of your KiwiSaver scheme, you are able to withdraw from your account once you've reached the retirement age and have been in the scheme at least 5 years.

Yes - individuals can deposit lump sums into KiwiSaver and carry on contributing for as long as they wish.

You can continue to receive member tax credits until you are eligible to withdraw from your KiwiSaver account.

We offer a regular and simple draw-down facility for people once eligible.

This can be set up for minimum amounts of $200 a fortnight, $400 a month, $1000 a quarter.

Partial withdrawals must be for at least $1000 each time and a minimum investment of $1000 must remain in your account at all times.

KiwiSaver is a PIE tax investment. What this means is that any investment returns are taxed at your prescribed investor rate - so please note that returns of any funds in KiwiSaver, whether in a conservative or growth fund, are not tax free.

We enable investors to check for daily updates of the unit pricing of the funds and also check your account balance online.

Importantly given all your personal circumstances it is most appropriate that you seek independent professional advice.

•David Boyle, ANZ Wealth general manager funds management.

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 Herald's panel of industry players email Helen Twose, helentwose@gmail.com.

- NZ Herald

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