Right time for tax-saving option with low-cost industry fund a super idea

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Shocked businesswoman

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Q Hello Scott,

My husband and I are 44 years old and have three children. He is self-employed and I work part-time. We have paid off our home and own two rental properties - we owe $300k on them. I have $60k in my super and contribute $200 a month.

My concern is that my husband does not have a super fund. His business just manages to pay for our living expenses and school fees. He says he cannot afford super and feels it will be fine to sell a property in our retirement and live off the money.

Is this a wise choice?

Thanks, Carol

A Hi Carol,

Self-employed business owners don't have to pay themselves super - and many don't. Yet as a small business owner myself, I think of it this way: I pay my employees super, and I work just as hard, and deserve it as much as them!

Your husband can sell down a property upon retirement, and he can contribute the bulk of any profit he makes from selling his business into super without affecting his superannuation caps (subject to him meeting certain rules).

At least, those are the rules as they stand today. When he eventually retires, who knows?

The rules can change depending on how Kevin Rudd feels about the "right" way to work.

So my advice would be to take the no-brainer tax deduction now.

Nag your husband until he opens up a low-cost industry fund.

Tell him there are two advantages: he'll be able to make tax-deductible contributions, and he can also get cheap income and life insurance.

SEEKING ANSWERS

Q G'day Scott,

I'm recently coming to the end of a 12-year maintenance agreement with my ex-wife for our son who is about to turn 18 and is going to university.

The $1300 a month that I've been paying will now be freed up for me to save or pay stuff off. So, should I use the money to:

a) Make monthly payments on my investment mortgages (of which I have two).

b) Make monthly bank deposits into my two younger kids' trust funds.

c) Pile it into my high yield ANZ Progress Saver account and wait for it to grow into a lump to buy more AFIC shares?

I'm anxious that I don't waste this opportunity to grow the money in the smartest way I can.

Cheers, Sean

A G'day Sean,

As long as your mortgages are under control, I wouldn't do any of the options you've outlined.

Instead, I'd either build up a strong Mojo fund of three to six months' living expenses (investment properties tend to be cash drains - and you have two!). If you have your savings sorted, then I'd be inclined to buy your AFIC shares, but through your super fund.

Rather than getting necked at your marginal tax rate, you'll pay only 15c in the dollar - which ultimately means you'll have more money to invest.

SOME HOME TRUTHS

Q Hi Scott,

My 23-year-old son has just finished uni and has found a job paying around $43k in IT. He is a very good saver and wants to buy his first house outright as soon as he can. I realise this will take a while, so which is the best way he can do this quickly?

Thank you, Vin

A Hi Vin,

He could rob a bank, though I wouldn't recommend it.

I'd have him open a First Home Saver Account (FHSA), which will give him a government-backed combined 22 per cent return on the first $6000 he contributes each year.

RENTAL AGREEMENT

Q To help pay off our mortgage, my boyfriend and I are thinking about renting out a couple of rooms - but wanted to check what tax complications that could potentially throw up?

Thanks, Kath

A Hi Kath,

It might allow you to claim a tax deduction for part of your expenses - but you also open yourself up to potentially paying capital gains tax when you sell.