Successful and sensible investments for children
Many investors want to finance their children’s education or save small amounts for driving licenses or cars on their behalf. You have a wide selection of different investment options to choose from. In addition, the investment for children enables significant tax savings, but is not free from pitfalls.
Investments for children help save taxes
In Germany it is possible to open share accounts, daily and fixed deposit accounts as well as savings plans under the name of the children. This means that parents can save tax on and by investing children. Children are considered before the tax office full taxpayers accepted and can therefore also benefit from allowances:
- Saver flat rate of 801 euros.
- Basic allowance 8472 euros (2015)
- Special expenditure lump sum of 36 euros
This results in a total allowance of EUR 9,309. This means that in principle it would be possible for the parents to achieve a correspondingly high profit for the child without the child having to pay taxes. In principle, this makes it possible to easily invest six-figure sums without the child having to pay income tax.
As usual, you can also open a deposit or account Exemption application To give. The withholding tax is then not paid to the tax office up to the limit of 801 euros. A so-called Non-assessment certificate also means that the bank does not deduct any interest income. However, this is only possible if the child is unlikely to generate income above the basic allowance in the relevant reference year. It is valid for three years and can be requested from the responsible tax office. If, contrary to expectations, the child’s income exceeds the tax-free allowance, the unpaid taxes must be paid later.
Investing in the name of the children can also have advantages if assets are to be transferred to the children for tax-saving reasons before they even die. This is up to an amount of 400,000 euros without gift tax possible. The donation can also be repeated after a 10-year period, but the amount is also counted towards the inheritance tax exemption.
Be careful when investing in children
Even though there may be significant tax advantages, it is not always sensible to invest large amounts of money for the child. Children can no longer be free of charge from their parents in the Statutory Health Insurance be insured if their income exceeds the amount of 395 euros per month. This also includes capital income and interest. If this is the case, you have to insure yourself against the minimum amount of the health insurance companies.
The In addition, property rights are not clearly regulated without a gift contract. German case law does not clearly assess this question. In this way, a girl was able to successfully claim the fixed deposits deposited by her father, in another case the parents were free to dispose of the investment amount. If you want to claim tax benefits in any case, you should therefore transfer the assets to the children as a gift.
Bafög reduction in the child’s assets
Investing assets in the child’s name can also a double-edged sword in financing the trainingbe g. It is not uncommon for families to be able to save money with difficulty in order to make their child’s start in professional life as easy as possible. If the parents’ income during the child’s education is so low that they could receive a student grant, it may be that the child’s assets are in the way.
Since Bafög only has to be repaid in half and discounts for one-off payments are also possible for the loan repayment, it can make a lot more sense for the child if he only receives the saved money after completing his education. Savings books, insurance or plans must not be in the child’s name.
The following rules apply to the Bafög:
- In the case of a single without a child, 7,500 euros are not counted.
- Only your own assets can be taken into account.
- A motor vehicle can also be classified as assets.
- Liabilities reduce assets
- Donations do not protect against offsetting.
When is the best time to start investing in children?
The best time to start investing is birth. At this point, relatives are most likely to participate, and the child can also stay the longest from compound interest benefit. In this way it is possible to invest less additional money with the child’s advanced age and still receive the same credit as would be the case if the investment had started at school age.
How can children invest money??
It is not uncommon for the youngsters to save money themselves in order to finance larger purchases. Above all are suitable for this Money market accounts. However, not all banks offer these to minors and they also often have lower interest rates than adults.
Overview of Consorsbank’s savings products, source: Consorsbank
On children account is the better option for many minors and can also teach children how to use money. They can often be used free of charge by children and have better interest rates than call money. They can also be easily converted into a checking account when they are of legal age.
Still the classic among German investors who want to save money for their child – but because of the low interest rates anything but recommendable.
Call money is certainly a better option than the savings book, but the interest is still too low. In addition, investors do not use the opportunity to invest money in the long term and thus increase the return. You pay the flexibility of the daily allowance with unnecessary Loss of return.
Building society contracts are one of the classics with regard to the provision of capital to children. Even in low interest rates, they have an advantage over the savings book. One disadvantage is currently low interest compared to many other investments. There is also a building society contract not very flexible. That is another reason why it is recommended to keep the minimum savings amount low.
Fixed-term deposits have the advantage that they are also suitable for investors who do not want to deal extensively with the investment for their child and also the safety estimate. Interest rates are often better here than with overnight money, and since the money is not needed, a longer term can be chosen. However, it is only conditionally suitable for saving a credit. Banks often require at least one four-digit amount as minimum deposit.
Bank Savings Plan
- With bank savings plans, a fixed amount is paid in at regular intervals.
- The Term is determined in advance and affects the interest rate.
- The longer the investor decides, the higher the Bonus interest.
- The interest is not paid out, but reinvested, so that an additional compound interest
Investors should pay attention to whether it is flexible or variable interest rates is. Due to the low key interest rate, a fixed agreement on the interest rate is not recommended, as a later increase is likely and the savings plan can then no longer keep up with other investments. Bank savings plans with variable interest rates, on the other hand, adjust to the market situation every six months.
It is usually not a problem to be free of contributions, but the amount already saved can only be used again at the end of the term.
- With savings bonds one Total from 500 euros invested over a fixed term of between one and ten years.
- One is possible annual payment of the interest or a reinvestment of the interest in the savings certificate.
- In the case of savings bonds with compound interest effect, the interest is either added towards the end of the disbursement amount or the deposit was designed in such a way that it shows a certain amount of savings with interest.
Funds and fund savings plans
Funds make it possible to invest one contribution paid once, Fund savings plans are suitable for Saving an amount through monthly payment. Both variants are suitable for risk-taking investors. In funds, the balance is used by many investors to invest in certain capital goods such as real estate, bonds or shares and thus to better spread risk. you are through Administrative and acquisition fees but not cheap, but they are managed by financial professionals.
Savings plans can be opened at Consorsbank from € 25, source: Consorsbank
Basically, the risk of loss of fund shares decreases with a long term. However, it can still be problematic that the market could be in a downward movement if the child is to be able to use the assets.
ETF and ETF savings plans
ETFs work similarly to funds. The difference here, however, is that they track a specific index or industry and the composition does not change through the active involvement of portfolio managers. This way, a similar one risk spreading as achieved with well diversified portfolios, but for this the investor must also fully follow market movements, which can have both advantages and disadvantages. The biggest advantage over funds is that of ETFs better are.
Training insurance that belongs to the capital-forming life insurance policies count, are considered by consumer advocates not recommended categorized. On the one hand, the child is to be protected against financial consequences from the death of the parents or grandparents, at the same time it is an investment for the child. It is not uncommon for the child’s accident or disability risk to be covered as well.
A disadvantage of this insurance, however, is the fact that it has risks not appropriate secure and also high commissions and administrative costs can significantly reduce the return.
Term life insurance
Compared to training insurance, life insurance is considered to be much more suitable. Other investments are then more suitable for saving capital for the child. However, it represents a useful addition to capital investments.
There are several ways to invest money for children. The investor often has to choose between flexibility and return. An increased risk can also make sense depending on the investment objectives. When investing in children, it is also advisable to use different products and thus spread the risk. Parents are also rewarded with tax savings. However, complications can arise within the framework of health insurance, student loans and property rights.
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