You’re likely aware that people can put money into their super until they reach 67 years and probably already do so yourself.
But did you know you can put money into your underage children’s superannuation for them if they are under 18?
Some superannuation fund providers can have special accounts that can be opened for children under 18.
One of the advantages of doing this early on is that money will accrue in the fund until your child reaches their preservation age, which will help them with their retirement.
Additionally, the compound interest that superannuation funds with as little as $5,000, for example, accumulating at 7% per annum until the child reaches their preservation age, could increase exponentially.
Compound interest on these superannuation funds could assist them year after year with increased gains and profit.
With that previous example of a child’s superannuation fund of $5,000, if that amount of money accrued interest at the 7% per annum interest rate over 55 years, the result could be that that amount in the super fund may total over $200,000.
This idea is not always suited for everyone. The funds to start the super account need to be readily available, and for many people, that might not be an option. If the money is available through other investment opportunities (i.e. a grandparent wishing to leave their grandchildren money), this could be a means through which that money is tucked away, ready for their superannuation.
If you’re looking for a way for your children or grandchildren to be looked after when you are not around, investing in superannuation is an intelligent way to look towards the future.
After they commence work, adult children should have a superannuation fund established already (through which their employer contributions can be funnelled). However, you might consider adding them to your self-managed super fund as an additional member or trustee.
There are a variety of issues to think about before including adult children in a self-managed super fund.
There are financial benefits to including children in a super fund, such as the increased pool of assets created over time that can allow for greater diversification of assets. Many people may invite their children to join their super fund as it allows them to provide their children with a financial education on how to manage money and appreciate the benefits of super.
For example, adding adult children means the super fund must cater to a wider range of ages, which can present challenges for parties with different needs.
Also, all members of an SMSF fund with a corporate trustee are expected to be actively involved directors of the fund. This means that your children will also be expected to be directors of the fund and will, therefore, play an important role in the fund’s decision-making. Although the children may be happy to leave the fund’s investment arrangements as they are, will they be in the future when their circumstances may change?
The handling of situations listed above should be mapped out before children are invited to join the super fund to avoid arguments or confusion.
Seek further information and advice from your accountant about what we can do for you to get this started.