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Understanding Education Bonds: A Tax-Effective Solution for Funding Your Children’s Education

Understanding Education Bonds: A Tax-Effective Solution for Funding Your Children's Education

Are you a parent looking to fund your child’s education? f so, you’re not on your own. Many parents worry about how they will be able to pay for their children’s education. This is where education bonds come in. They are a way to pay for your child’s education without paying too much in taxes.

Education costs in Australia

In Australia, the cost of education is going up at a scary rate. According to the Futurity Investment Group Cost of Education Index, Melbourne is Australia’s most expensive city for a government education. It is estimated that a government education for a child starting school in 2023 will cost $102,807 over 13 years.

This is 17% more than the average for the country.

Also, the cost of education in Victoria is made up of more than just tuition fees and contributions from parents. For example, parents who send their kids to public schools may have to pay for things like uniforms, tuition from outside the school, and electronic devices.

Families who are new to the public school system may be surprised by these extra costs. This is what is called a “cost shock.”

Education bonds are a tax-efficient way for parents to pay for their child’s education. They can help them save and plan for these costs. By buying education bonds, parents can rest easy knowing they have a dedicated savings and investment product that can help them save up enough money to help their family’s education goals for life.

What are education bonds?

If you’re looking to fund your child’s education, education bonds can be a great option to consider. Education bonds, also known as education investment bonds, are a type of investment product that allows you to invest money for your child’s education. They differ from other types of investments because they offer unique benefits that are specifically designed for funding education.

One of the biggest advantages of education bonds is their tax efficiency. They allow you to invest after-tax dollars in a tax-free environment, meaning that any earnings on your investment are not subject to tax. This can be a huge advantage compared to other investment products, which may be subject to tax.

Another benefit of education bonds is their flexible investment options. You can choose from a range of investment options, including different asset classes and risk levels, allowing you to tailor your investment to your personal financial goals and risk tolerance. Additionally, education bonds offer a range of features, such as the ability to make regular contributions or one-off lump sum payments, making them a highly versatile investment product.

Overall, education bonds can be a great way to invest in your child’s education while also enjoying tax benefits and flexibility. In the next section, we’ll take a closer look at how education bonds work and the different types of education bonds available.

How education bonds work

Now that we understand what education bonds are and their benefits let’s dive into how they work.

Education bonds are investment vehicles that allow you to save and invest money for your child’s education in a tax-effective manner. The process of investing in education bonds involves putting your money into a pool of capital that is then used to purchase units in different investment options. These investment options include a range of asset classes, such as Australian shares, international shares, property, and fixed interest.

The value of the investment options is reflected in the unit price of the education bond. When you invest in an education bond, you are allocated a number of units based on the amount of money you invest and the unit price at the time of investment. The unit price changes based on the performance of the underlying investments.

One of the key benefits of education bonds is their flexibility. You can choose your investment options and adjust your investment strategy as needed. This flexibility allows you to tailor your investment to your risk profile, investment goals, and the needs of your child’s education.

When it comes to withdrawing funds from education bonds, there are several options. You can withdraw the capital at any time, which is tax-free. Additionally, if you have an education beneficiary attached to the bond, you can withdraw funds for education costs, such as school fees or textbooks. The best part is that if you use the funds for education costs, there is a 30% government tax offset available, which makes education bonds a tax-effective way to save for your child’s education.

Another significant advantage of education bonds is that if there is an education beneficiary attached to the bond, you can have access to the capital before the 11th year. This is different from other investment bonds, where you can’t touch the earnings until the 11th year.

Choosing the right education bond

When it comes to choosing the right education bond, there are several factors to consider. The first thing to look at is the investment options offered by the bond. Different bonds may offer a range of investment options, including managed funds and ETFs, with varying levels of risk and return.

It’s also important to consider the fees associated with the bond, including any management fees or charges for making withdrawals. Some education bonds may have higher fees than others, so it’s essential to read the fine print and compare different options before making a decision.

Another crucial factor to consider is flexibility. Look for education bonds that offer the flexibility to withdraw funds for education costs or tax-free capital withdrawals, as this can provide peace of mind and greater financial security.

Choosing a trusted financial advisor to help with this decision can be invaluable. A reputable advisor can provide expert advice and guidance, taking into account your individual financial situation and goals, and help you select the education bond that is right for you.

By working with a financial advisor, you can be confident that you are making an informed decision and investing in an education bond that will help you achieve your financial goals.

Futurity Investment Group’s Education Bonds

When considering different options for education bonds, it’s important to choose a provider with expertise in tax and investment markets. Futurity Investment Group is one such provider with a strong reputation for helping families fund their education objectives. 

As Amy Parsons, an expert from Futurity Investment Group, explains:

“We are an independent and mutually structured financial institution and Australia’s leading issuer of tax-effective, life-event Education Bonds. Our primary purpose is to enable our members to attain financial self-sufficiency to meet lifelong education objectives for themselves and their families.”

Futurity’s unique ownership structure sets them apart from other financial institutions, as its members rather than shareholders own them. This means their interests are aligned with those of their clients, making them a reliable partnes for long-term financial planning.

In addition to their ownership structure, Futurity’s education bonds offer flexible investment options and tax-efficient benefits. With their expertise in tax and investment markets, they can help clients navigate the complexities of financial planning to reach their education funding goals.

Work With a Financial Adviser that understands Education Bonds.

In conclusion, education bonds are an important tool for parents looking to fund their child’s education. They provide a tax-effective solution and flexible investment options that can help parents plan for rising education costs in Australia. When choosing an education bond, it is important to consider factors such as investment options, fees, and flexibility and seek the guidance of a trusted financial advisor. 

As a leading provider of tax-effective education bonds, Futurity Investment Group can offer the expertise and mutual ownership structure that sets them apart from other providers.

At Wealth Architects, we are committed to helping our clients make informed decisions about their financial future, and we encourage you to reach out to us for guidance in choosing the right education bond for your family’s needs.

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