kiwisaver member tax credits

It’s Time to Check Your KiwiSaver

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This time of year is especially important for the self-employed, but the rest of us can use the KiwiSaver “anniversary” to make sure we have it all dialled in properly. Here’s how.

 

The KiwiSaver calendar year runs 1 July to 30 June. The Member Tax Credit from the government (to a maximum of $521.43) will be paid out over the coming months, assuming you have contributed the minimum of $1,042.86.

 
If you’re PAYE, 18 or older, earning $35k or more, and have three per cent from your salary (and your employer matching that with three per cent) then you will have reached the threshold.


If you’re self-employed, then, as we hope you know, you’ll need to make voluntary contributions. You may have set this up with a direct debit from your account or perhaps you’re planning to make a lump sum to your KiwiSaver. If you’re the latter, pay those voluntary contributions today—you are running out of time.

 

If you need to make a voluntary contribution and think $1,042.86 is not in the budget, don’t be discouraged, you can still receive 50c on the dollar if you deposit anything up to $1,042.86. So, if you put in $500, the Government contribution will still be $250.

 

This “KiwiSaver New Year” is also a perfect opportunity to ensure that your KiwiSaver is set up right for you. That is, that you are not sitting in a default fund and that your tax rate is correct.

 

Default Funds
When it comes to the default funds it is simply the worst place for many savers to be, yet there is not an effective way by providers (or the government) to get those members to move.


The big problem with the default funds is they are largely invested in lower risk, lower return assets like cash and bonds (maximum investment in growth assets like shares is 25 per cent). The lower the return, the lower that retirement nest egg will be.


There’s more than $8b (yes, billion) invested in KiwiSaver now. The 400,000 KiwiSavers who are invested in default funds, missed out on an estimated $1 billion over the last 8 years.

 

The tax rate can be a game changer for you as well. Some Kiwi’s (around 120,000) are paying more tax than they need to. It, literally, can pay to have your tax rate (for Kiwisaver, this is your Prescribed Investor Rate or PIR) correct. If it’s wrong, changing it could make a difference of $26,000 for you in your KiwiSaver. That’s a significant chunk of a first home deposit—or your retirement income.

Google “KiwiSaver tax rate” and get yours in line.

 

Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

KiwiSaver and why it's not just for retirement

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Simon O’Neill provides a where-we’ve-come-from and where-we’re-going analysis of KiwiSaver and how it can help you into your first home.


Back in 2007, when KiwiSaver came in, it was touted as a retirement scheme: feed it until you're 65 and you’ll have a fantastic nest egg to assist when retire. You could choose what percentage you contributed, and both your employer and the government would contribute (the latter by way of the member tax credit of up to $521 per year). This is your money and won’t be taken back. The $1000 kick start payment was a tax-free government contribution made to all KiwiSaver members who joined before 2pm on 21 May 2015.

 

Some of us were opted-in by default (1.6 million Kiwis in KiwiSaver in 2011) and have been contributing consistently without much thought or care for what happened to the money. These people will have likely built up something quite substantial that can be considered genuine savings.

 

The money goes into your KiwiSaver account, which is part of a larger fund managed by your KiwiSaver provider and they invest your funds in different assets, like cash, shares, fixed interest and property. You decide the exact match of percentages divided across the different types of funds. The IRD acts like the gate keeper.

 

Our clients (and myself six years ago) were over the moon to hear that KiwiSaver came with another terrific option: I could use a good part of it for the deposit on my first home. Plus, had I been contributing without a break for several years, and met some other pretty surmountable criteria, there was a built-in even more terrific option in the Home Start Grant that could further boost my deposit and general attractiveness to the bank.

 

A KiwiSaver account is a powerful tool to wield when it comes time to ask a home loan provider for hundreds of thousands of dollars. And the bigger your balance is, the closer you can get to that favourable 20 per cent deposit.

 

If you meet the government’s conditions to withdraw all but the thousand-dollar kick start to put towards your first home, you will find yourself in good news and bad news situation. For, yes, you do get a home and a great asset but, also, your retirement fund takes quite a hit. Of course, that home could be just the beginning—but not everyone is a property investor. So, if you’re using the KiwiSaver for your first home, it’s important to get a solid understanding of timing for using your KiwiSaver (and Home Start Grant) for your purchase.

 

Should a boutique KiwiSaver provider shut down (arguably more likely than a bank, but them too) then your money is not gone. IRD will guide you through either putting you into a default provider or you can contact a new provider directly to start with someone new.
You can change sooner if you wish. Often the application process is quick, efficient and online.

 

Given it’s such an integral part of the New Zealand landscape, it’s unlikely KiwiSaver will drastically change.

 

If you find yourself back to square one, given all the money went into the house, or reading this has you thinking that now is the time to be proactive about your retirement savings, head on over to kiwisaver.govt.nz and do some digging. You’ll see the different ways you can use your KiwiSaver, the different investments you can spread your money across, see what a good performing KiwiSaver looks like and what happens to all the money if you die before 65.

 

And while you’re online, Google “KiwiSaver providers in New Zealand” and you’ll have some reading to do (176,000 options in 0.68sec, no less).

 

Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

 

 

How to get free money with KiwiSaver

It’s May already? With the year flying by Alex Barendregt shares how to get free money* from your KiwiSaver before the end of June.

It may come as surprise to hear that our government actually hands out free money* to everyone that contributes to KiwiSaver. This free moolah comes in the form of Member Tax credits.

So, how much can I get?

Well, that all depends how much you put into it. The government will pay fifty cents for every dollar of member contribution annually, up to a maximum payment of $521.43.

This means that you must contribute $1,042.86 annually to qualify for the maximum payment of $521.43.

For most people, this will happen automatically as they contribute a minimum three per cent of their income to KiwiSaver. This will take them over the threshold fairly easy.

However, if you have not been contributing due to a KiwiSaver holiday or youʼre self-employed or you were without a job, it could still work for you. Here’s how …

You may have heard the saying, "The best time to plant a tree was 20 years ago. The second best time is now!” In the KiwiSaver context, if you plant that metaphorical tree before the end of the KiwiSaver year (1 July to 30 June) by putting in some extra funds manually you will benefit from this government incentive this year.

So, now’s the time to get cracking. Put some money into your KiwiSaver and get it topped up with some free money from the government.

If you don’t have a KiwiSaver or have some questions around it, feel free to contact Alex for an obligation-free chat.

 

Fun Fact: Last year the government set aside $500 million for Member Tax Credits that were unclaimed by participants. It’s sitting there waiting for you. Go and grab it!

 

*Free money relates to Member Tax Credits.

Sources: http://www.stuff.co.nz/business/money/10506702/KiwiSavers- missing-400m

 

Alex Barendregt is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request

KiwiSaver's "Free Money"

We are well and truly into the New Year, the financial year is drawing to a close, but did you know you could greet the New Year with some free money? Alex explains.

 

People are often surprised to hear that the government actually hands out free money to everyone who contributes to KiwiSaver. It comes in the form of Member Tax Credits.

 

So how much Member Tax Credits (a.k.a “free money”) can you get?

 

That all depends how much you put in to KiwiSaver. The government will pay 50 cents for every dollar a member contributes annually up to a maximum payment of $521.43. This means that you must contribute $1,042.86 annually to qualify for the maximum payment of $521.43.

 

For most people who haven’t opted out for KiwiSaver, this will happen automatically by contributing (a minimum) three per cent of their income on KiwiSaver. For most full-time workers this will take you over the $1042.86 threshold.

 

However, if you have not been contributing due to a KiwiSaver holiday or you are self-employed or you have been without a job, KiwiSaver’s Member Tax Credits could still work for you.

 

To explain, you may have heard this saying: "The best time to plant a tree was 20 years ago. The second best time is now!” As in previous mentioned situations, you are still eligible for KiwiSaver’s “free money” by manually adding some extra funds to your KiwiSaver. If you do this before the end of the KiwiSaver year (this year runs from 1 July to 30 June) you will receive this year’s Member Tax Credits.

 

If you don’t have a KiwiSaver or have some questions about it feel free to contact me for an obligation-free chat.

 

Fun Fact: Last year the government set aside a whopping $500 million of Member Tax Credits that were unclaimed by participants.

 

Also read this helpful Stuff.co.nz article:  http://www.stuff.co.nz/business/money/10506702/KiwiSavers-missing-400m

 

Alex Barendregt is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request

Will You Receive Your Full KiwiSaver Member Tax Credits (MTC)?

Whether or not you receive your full KiwiSaver Member Tax Credits (MTC) is an important question, but you’d be surprised how many people don't know the answer. Jaimie helps bring some certainty and explains why you need to act on this before the end of the month.

 

If you're 18 or over, for every $1 you put into your KiwiSaver account, between 1 July and 30 June the following year, the government will put in 50 cents, up to a maximum of $521.43 per year.

 

The government puts aside enough money to cover the Member Tax Credits for everyone who is eligible. However, can you believe that over $300 million went unclaimed in 2015 alone? Who said, "I'm not going to worry about it, the government can keep my money?" NO ONE EVER!

 

It doesn't matter whether you are an employee or self-employed. If you are employed and are in a KiwiSaver scheme you will be contributing either 3, 4 or 8 per cent of your before-tax pay and your employer is required to match this with a minimum contribution of 3 per cent.

 

This essentially means that as long as your before-tax pay is more than $8690.50 annually OR you are self-employed and contribute at least $1042.86 before 30th June you will receive your maximum Member Tax Credits (or what I like to call FREE MONEY).

 

For self-employed folks this works out to making a minimum contribution of around $20 per week. And if you haven't done this yet, and have some funds set aside, you can also make a lump sum deposit before 30 June.

 

Where else can you receive a guaranteed extra 50 cents on the dollar?

 

If you would like to dig a little further regarding your KiwiSaver benefits or you just want sound mortgage advice on what options are available to you please give us a bell.

 

Jaimie McDonald is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.