When Australians think of building wealth to transition to retirement, superannuation usually comes to mind. However, ongoing reductions in superannuation concessions and the restrictions on the use of superannuation as a wealth generating and estate planning platform have driven a renewed interest in the investment bonds market which is now widely used as an alternative to super.
Ideal for high income earners in Australia looking to build wealth for retirement
Tax on investment bond earnings are paid by the bond issuer at a maximum tax rate of 30%, rather than your personal marginal tax rate. These earnings don’t contribute to your personal income and can be especially beneficial for investors on a marginal tax rate of greater than 30%.
From year to year, the actual tax paid can be a lot less than 30% depending on the asset class invested in. This is due to the favourable effects of imputation and foreign tax credits and tax provisioning undertaken for your investment.
Estate planning advantages
An Investment bond is a simple, cost-effective solution that provides greater control over how you pass your investment on to the right people, at the right time.
At Generation Life, our LifeBuilder’s EstatePlanner feature can help with transferring your wealth in a will-like fashion, and can help manage complex family arrangements. You can also provide for non-family members, as well as charities. For extra peace of mind, you can also control when the recipient can make withdrawals and limit the amount they can withdraw each year.
Importantly, the investment’s tax status will be preserved for the future recipient as the 10-year advantage period isn’t re-set.
Alternatively, you can nominate beneficiaries (which can include individuals, companies, trusts and charities) to receive the proceeds of your investment on the death of the nominated life insured.
Building family wealth for the next generation
Similar to high income earners, investment earnings in children’s names can often attract higher tax rates. So by opting for an investment bond, you can create a tax effective way of saving for your children’s future.
