My young son wants to invest $3000. Could we put it into my super?

I’m 55, and my 12-year-old son has $3,000 to invest, with potential for smaller ongoing contributions. Investing for minors seems complex and tax-inefficient, so I’m looking for a simple solution. I have a secondary super account holding cash for Death and TPD insurance. Since I’m under my contribution limits, would making a $3,000 non-concessional (after-tax) contribution into its high-growth portion be a tax-effective way to invest for him? At 60, I could withdraw it tax-free if he wants access, or he could leave it invested.

This seems more flexible than a discretionary trust, holding ETFs in my name, or an investment bond (which requires 10 years for tax-free access). While I’ll seek financial advice, is this strategy fundamentally sound, or are there better options?

Your strategy sounds a reasonable one as long as you keep in mind that the maximum concessional contributions are $30,000 a year including the employer contribution. You could also make after tax contributions if your total superannuation balance was under $1.9 million.

Investing on behalf of your children can throw up multiple issues with tax and capital gains. Could superannuation be an easier option?Credit: Simon Letch

My eldest daughter started working when she turned 14 years. Since starting work and to save her hard-earned, she was encouraged to save and transfer some savings into an account in my and my wife’s name. She is now 25, and is looking at buying her first home. I’m wondering how I should go about transferring the money, now worth $85,000, back to her. My wife and I have reported the interest earnings via our tax returns. Can I simply deposit the money into her account or do I need to include particular wording in a kind of transaction receipt?

There are no tax implications in transferring the money to her unless you receive income support, which seems unlikely based on the information provided.

It’s unfortunate you didn’t seek advice earlier, as all the capital appears to come from genuine employment. Had the funds been banked in her name from the start, she would have been taxed as an adult rather than facing punitive children’s tax rules.

I have read your book Wills, Death and Taxes. In one section, you talk about aged care funding. Could you please advise if paying a Refundable Accommodation Deposit (RAD) reduces the Daily Accommodation Payment (DAP)?

Rachel Lane says that the DAP is essentially interest on any unpaid RAD. The interest rate is set by the government each quarter, so it depends on when you move in. The current rate is 8.42 per cent per annum.

For example, if you move in today and the RAD is $500,000, but you decide to pay $200,000, the DAP will be calculated on the remaining $300,000 at 8.42 per cent, divided by 365 – resulting in a daily payment of $69.20. If you pay the RAD in full, the DAP would be zero.

It may seem like paying the RAD in full is the best option, but this depends on what you are selling to fund it. Many people rush to sell their home without realising that it is exempt from pension means testing for two years and has a capped value of $206,000 for aged care means testing.

Other key considerations include the fact that the RAD is included in the aged care means test but is exempt for pension calculations. Additionally, any leftover funds after paying the RAD are assessed for both pension and aged care purposes.

This is definitely a situation where professional advice is essential. Making the wrong decision could easily cost you $60,000 in the first year due to reduced pension entitlements and increased means-tested fees.

Is it possible for a self-managed super fund in pension mode to meet the minimum annual drawdown for one partner, while keeping the remaining balance in accumulation, and later rolling it over into pension mode to take advantage of the upcoming $2 million transfer balance cap? The SMSF currently holds $1.9 million per member, with additional funds in accumulation.

You can keep funds in accumulation mode indefinitely, but to move them into pension mode, you must comply with the transfer balance cap (TBC). If you have already used your full TBC, which is highly possible given that your SMSF pension balances are now $1.9 million each, you cannot transfer additional funds into pension mode.

However, if you have any unused portion of your TBC, you can roll more funds into pension mode. Your current TBC can be found at myGov.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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