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Using bonus toward education costs

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A Fin24 user in his late 20s is looking for savings vehicles to kickstart his children's education savings. He writes:

I am in the fortunate position of getting a substantial bonus at the end of each financial year. I am in my late 20s and my wife and I have had our first child.

I have been reading numerous articles on how much education is going to cost and all the other extras that go with schooling, books, clothing, sports, etc.

I am looking for an investment/savings vehicle that will not attract tax when I withdraw portions of the money to pay for school/university fees.

What I would ideally like to do for every child we have, is to open an investment/savings account, deposit a once-off amount of R250 000+ and then every year top it up using part of my bonus and salary.

What options do I have?

Sinenhlanhla Nzama, Investment product manager at Old Mutual, responds:

Given the tough realities of the cost of quality education and the high education inflation, it is a wise choice to seriously consider the best options when investing for your child's education.

There are a few investment options in the market you would need to consider with your financial adviser.

In terms of not paying tax when you take your money out, the education plans offered by life insurance companies would meet these criteria, as tax is charged in the hands of the insurer.

Since you want to make top-ups in the future, you would ideally look specifically for a ‘flexible’ education plan (rather than a plan with regular monthly premiums). All future top-ups are added to the original investment, and grow together over time.

Remember to also consider other factors when choosing a product, such as costs and expected returns.

The other investment vehicles available include education plans offered through the unit trust funds. However, you may be liable for capital gains tax when you take your money out.

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.


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