Investment Bonds Explained Accumulate wealth using tax-effective investment bonds to pay for expenses like child education or retirement. Investment Bonds Investment bonds (also know as “insurance bonds”) are a financial product issued by life insurance companies. Insurance bonds have features similar to managed funds integrated with a personal life insurance policy. Investment bonds can be a tax effective way to invest your money for the long-term. It is important to understand the costs, taxes and contribution restrictions of insurance bonds. Dumont Wealth are experienced investment advisers with a specialisation in insurance/investment/education bonds. Save for future child education expenses, a deposit on a first home or a future investment property in a tax effective way. Investment bonds are tax effective investment vehicles with unique features and rules that can deliver a significant advantage to you over traditional investment ownership. Commencing a strategy ahead of time can have significant compounding effects and can impact the achievement of your goals. Partner with us to help you. We have a variety of solutions and investment strategies that are tailored to the desired outcome and future funding required to pay for expenses. Alternatively, use this vehicle to have tax effective lump sum investments for the future. Investment Bond Purpose Investment bonds serve many purposes such as: Building wealth – A vehicle to grow your wealth over the medium to long term with access to regular savings plans Tax efficiencies – An effective investment option for investors on high income earners given the long term capital and income tax efficiencies Child advancement – Access to ‘educate bonds’ that are used specifically for accumulating wealth for a child. This type of bond can be structured to automatically be transferred into the child’s name at a pre-determined age, which is also referred to as a “child advancement”. Estate planning – An insurance bond is subject to life insurance rules, including the ability of the owner to nominate one or more beneficiaries to receive the proceeds of the bond in the event of the death of the bond owner. By nominating beneficiaries under an investment bond, the bond does not form part of the estate of the bond owner and may be administered separately to their estate. Investing Estates for Beneficiaries – Deceased estates that are required to invest bequests that will vest with beneficiaries at a later date. Parties of insurance bonds There are three core parties involved in an investment bond: Bond owner – makes the investments Life Insured – who may be the bond owner or someone else Bond Issuer – the life insurance company  Some bonds may include fourth party, being a nominated beneficiary. The bond owner may nominate a beneficiary to receive the bond proceeds in the event of the death of the life insured. Child Advancement Conditions Where a bond is issued on the life of a child, and its ownership is to vest in the name of the child at a future date, the bond is subject to Child Advancement Conditions. The owner of the bond may nominate an age, up to 25, at which the ownership of the bond will transfer to the child. This can help you to ensure that the funds are not mis appropriated by a child that may not be of sound maturity in their teenage years. 10 Year Rule Insurance Bonds Insurance bonds are ‘tax paid’ investments, which means that earnings are taxed at a corporate tax rate through the hands of the life insurance company, which is typically at a rate of 30%. However, when considering deductions, offsets and credits, the actual tax rate of the investment bond can be much lower than 30%. Given the tax rate can be lower than 30%, this provides a good opportunity for high income and high net worth individuals to make tax effective investments. An investment bond is designed to ideally be held for more than 10 years to obtain significant tax advantages. After a full 10 years the returns on your investment (i.e., the capital growth), including additional contributions that meet the 125% rule, will be tax free. Investment bonds can also be useful for shorter durations given the inherent tax efficiencies at 30% tax rates. During this period, you can still access the investments and make withdrawals – find out more below! 125% Rule While investment bonds are often described as a ‘single premium’ or lump sum investment, many investment bonds accept both regular and irregular additional investments. Provided the amount invested in any one year – based on the anniversary of the bond commencing – does not exceed the previous year’s investment by more than 125%, it will be considered part of the initial investment. If your contributions exceed 125% of the previous years’ investment, the 10 year period will reset. If you do not make a contribution in any one year, a contribution in following years will reset the 10 year rule. Withdrawals If you withdraw money before 10 years, you will report this as taxable and assessable income with a 3o% tax offset to compensate for the tax already paid by the life insurance company. Where an investor’s personal tax rate is less than 30%, any unused portion of the tax offset can be used to reduce tax payable on other income in the same financial year. If you make a withdrawal within the first 10 years, the rate at which earnings in the investment bond are taxed will depend on when you make the withdrawal. Tax treatment of investment bond withdrawals Up to 8 years – 100% of the earnings on the investment bond are included in the investor’s assessable income and a 30% tax offset applies. In the 9th year – 2/3 of earnings on the investment are included in the investor’s assessable income and a 30% tax offset applies. In the 10th year – 1/3 of earnings on the investment are included in the investor’s assessable income and a 30% tax offset applies. After the 10th year – All earnings on the