Kiwisaver: Inheritance rules for first homes

Anyone can contribute as much or as little as they like on behalf of a KiwiSaver member. Photo / Thinkstock

Lawyer first port of call for grandparent bequests but KiwiSaver offers options for supporting grandchildren.

I would like to leave my grandchildren $20,000 each in my will to be used solely as a part deposit for a first house or to go towards their retirement fund. Can this amount be put into each child's KiwiSaver in a lump sum when I die? How can this take place without the child having a choice, does the solicitor organise this? Also, can this amount be withdrawn in full by the grandchild if needed for a house purchase? Are there any problems that may occur that I am not aware of that would be detrimental to this action? I do not want this inheritance to be frittered away because it represents a lifetime of my effort. This information may be useful for other grandparents who have similar concerns.

Well done for thinking ahead for your grandchildren, they're very lucky to have you as their grandparent. You will need to speak to a will and estate lawyer regarding how to structure your will so the restrictions you are seeking are enforceable and your desired outcome is met. As for depositing money into a KiwiSaver account, this is relatively easy and simple. Anyone can contribute as much or as little as they like on behalf of a KiwiSaver member; this can be done by depositing funds into the KiwiSaver scheme's trust account and attaching the correct references (usually the member's surname and IRD number or KiwiSaver account number) so the money is correctly allocated. Any voluntary contributions, regardless of who has made them, as well as the member's own contributions, employer contributions and investment returns can be withdrawn after three years in KiwiSaver and be put towards a first home purchase.

The government contributions ($1000 kick-start and annual member tax credit contributions) will remain in their KiwiSaver account for retirement.

Unlike the first home subsidy of up to $5000, the first home withdrawal facility does not have any income or house prices caps. Excluding government contributions, there is also no limit on how much of your savings you can take out.

The only requirements are that it is your first home, not a bach or a rental property, and that you intend to live in that home for the first six months.

This will apply to most young adults who are unlikely to have owned a home previously. There is no gift duty tax on any amount that you may contribute to KiwiSaver. I am not aware of any other problems that may occur that would be detrimental to this action, however I am only looking at this purely from a KiwiSaver point of view.
*Vedran Babic, Fisher Funds operations manager.

I'm self-employed and have been in KiwiSaver for several years, just putting in the minimum required to get the government top-up.
I usually do it at the end of the "KiwiSaver year" but is there any advantage to contributing throughout the year or does this just contribute to higher fees and suchlike?

Firstly, well done on ensuring you maximise your full member tax credit entitlement of $521.43 per year.

Too many people miss out on this generous incentive each year.

The advantage of contributing on a regular basis is that you "average" your cost of entry over time.

Investing equal amounts regularly (eg $20 per week) reduces the risk of getting timing wrong (especially when markets are volatile).

Most of us can't possibly know when the "right" time to invest is.

The amount of units you purchase with each regular contribution will vary as the unit price changes daily to reflect the latest valuation of the fund's investments - this could be up or down and the amount of units you purchase will vary inversely with the unit price.

In other words, you will purchase more units when the unit price is low and fewer when it increases. By contributing regularly you lower the average cost per unit over time.

Management and other percentage- based fees will continue to be charged on your KiwiSaver account as a percentage of your account balance (typically calculated daily and paid monthly).

Most schemes also charge a monthly administration fee which is a fixed charge, regardless of your account balance.

The more money you have in the account, the lesser the impact of administration fees as an overall percentage of your account will be.

As the administration fees are charged on a monthly basis, you would be slightly better off by contributing regularly.
*Vedran Babic, Fisher Funds operations manager.

If my income changes significantly and so does my PIR who notifies my KiwiSaver provider? Will the IRD do it on my behalf? I know it's something I'm unlikely to do.

While your KiwiSaver provider will take care of your KiwiSaver tax obligations, it is your responsibility to ensure your Prescribed Investor Rate (PIR) is correct.

This is very easy to change, you can usually send your provider an instruction via email/letter or they may ask you to complete a form.

Some providers also give you the ability to change your PIR via their online access facility.

Your provider will calculate tax on your proportionate share of income based on your PIR (either 10.5 per cent, 17.5 per cent or 28 per cent).

Each year you will receive a tax statement from your provider who will also ask you to confirm your PIR.

If you elect a PIR lower than the correct rate, or you do not advise a change to a higher rate, Inland Revenue may require you to file a tax return and pay any consequential tax shortfall at your marginal tax rate plus any penalties or interest.

Inland Revenue may also contact your provider and direct them to change your PIR.

So look out for your annual tax statement and seek assistance from your provider if you're unclear on what you should do.
*Vedran Babic, Fisher Funds operations manager.

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.