Special Needs Savings Advice
All parents who have a child with special needs knows the importance of saving for the future. In this article, I am going to discuss your main options.
You can invest your money in an investment product which can have a mix of assets such as cash, bonds, equity and property. Most investment products are sold by your bank or by Financial Advisors on behalf of insurance companies. All investment products come with a warning “You may get back less than you put in.” There is a reason for this and unfortunate thousands of families have found this out over the last few years.
Before ever signing any documentation, you first have to understand the product, more importantly, the underlying risk involved and read the small print. Look out for hidden charges such as management fees, levies and penalties.
Any profit your investment does make is going to be tax at 41% (referred to as “Exit Tax”) which as you are aware is a huge chuck off the final amount you will receive back from your investment.
If by nature you are more cautious then you can take out deposit based saving plans. The advantage of these types of plans is that they are less volatile and risky. But because of this then your returns will generally be less due to the guarantee of not losing your money. In today’s market place you would struggle to find many deposit saving plans with a 1% return.
Similar to investments, your money will also have to pay Deposit Interest Retention Tax (DIRT). All interest you receive is subject to this tax and is charged at around 41%. Some people I meet are totally unaware of this tax on savings. The reason is that it occurs automatically each year without your knowledge.
This is where I have recommended all my families (including myself) to put their savings until NOW. The reason I was so keen on them is that there is no hidden fees, charges, penalties and no taxes. This makes good sense to the more cautions of us out there and when the government aren’t taking 41% of the interest off then it a simple straight forward way to save. It is a particularly good place to put a nest egg of money away because you can get access to your money within 7-days if something unforeseen was to happen.
SO what is my issue now?
The government have slashed the rate of return dramatically on all these products. They are now offering less than 1% on all their products except their 10-year bond which was at 5% per year is now down to 1.5%.
If you are feeling lucky then you might be better off doing the state prize bonds which advertise that it pays out thousands of weekly prizes and one prize of €1 Million every 3 months, tax-free. I really can’t believe I wrote this but that is how bad returns are on savings at the moment!
For all the parents who have a Trust Life Policy
One of the many benefits of saving for your child’s future through a Trust Life Policy is the reassurance that you do not have to worry about the changes in rates or the payment of DIRT & Exit Taxes on your savings & investment.
The Trust Life Policy also gets around the issue of having savings in your child’s name that might come back to haunt them when they become a young adult and applies for means-tested service or entitlements such as Disability Allowance. If you put the money in your own name then again this might impact your access to certain means-tested payments such as Carers Allowance or a family Medical Card.
After setting up your Trust Life Policy and putting aside your nest egg then in today’s climate it makes good financial sense to start to clear your loans. Start with your highest rate loan which is typically your credit cards, then chip away any cars loans, personal loans and then finally attack your mortgage.
Getting your money working for you and getting yourself into a good financial position is key in helping you put the right financial structures in place to secure all your families future.