Investment bonds overlooked by advisers

Investment bonds, which are sometimes overlooked as an investment tools, offer a number of advantages that advisers should consider while planning their clients’ long-term financial goals, according to Foresters Financial.

The benefits would include an opportunity to supplement retirement savings, assist in estate planning and intergenerational wealth transfer, as well as investing on behalf of children, or making investments in a tax effective manner.

According to the firm’s chief executive, Emma Sakellaris, investment bonds also offered a wide range of investment strategies and assets.

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“Indeed, if you were to ask someone to develop, from scratch, a simple, tax-advantaged financial product that would help Australians build up their wealth outside their superannuation and enable the smooth transition of wealth across generations, they would probably come up with something very similar to an investment bond,” she said.

Further to that, for people who reached their superannuation contribution limits but had additional funds that they would like to save for their retirement, investment bonds offered a very flexible tax advantaged approach.

“Investment bonds have a maximum tax rate of 30% on earnings in the bond, so for people on a higher personal tax rate, it is very tax effective.  Furthermore, investors do not have to pay any personal tax on the money invested or the interest while funds remain invested,” Sakellaris said.

“If the bond is held for 10 years or more, any withdrawals from investment bonds after that period are not liable for personal income tax and are not required to be included in tax returns.”

Investment bonds could complement a will to enable the smooth transition of wealth across generations, with many people find setting up legal structures in a will, such as testamentary trusts, a complex and sometimes confronting process.

“However, setting up an investment bond as a way of leaving a lump sum to beneficiaries is much more straight-forward, and also has the significant advantage that it cannot be over-ruled or changed through a challenge to a will,” the firm said.

“The investment bond is simply taken out in the name of the benefactor, and ownership passes to the beneficiary – for example, a grandchild – when the benefactor passes or when the child reaches a certain age.”

On top of that, investment bonds were also an option for those looking to invest for their children as it allowed for the simple transfer of wealth to children, again tax free.

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