Children’s Education Fees Planning Donegal

Why should I start saving for my child?

Unfortunately for parents, the cost of raising children increases year on year right up until they’re ready to fly the coop. A lot of parents underestimate the costs needed to provide for their children’s future education and end up borrowing to meet these costs.

Providing a child with the best education is what every parent wants for their children – but it doesn’t come cheap. The max annual student contribution for university, for the academic year 2022-2023 is €3,000.

If your child was to go on to do a four year course at university, you would be expected to hand over €12,000, and that’s excluding accommodation, transport, food and book costs!
Of course, there are many other expenses along the way – you might want to give them a head start with buying their first home, buying their first car or helping them set up their own business.

By taking the time now to plan for these future expenses, you can become the architect of their future.

First Step

The first step in giving your child the best start in life is by taking action now. The earlier you start saving, the more money you will have available to support them, as they begin their own journey.

Life-Cover-Insurance
The earlier you start saving, the more funds you will have available to support them

Advice Fist Financial can assist you to put in place a Child Savings Plan, a unique savings plan which allows you to invest in a wide range of investment funds. By saving through this plan, you can build up a fund for the child and by assigning the plan to the child, you can make full use of the annual Gift Tax exemption of €3,000 from any one individual (€6,000 from a married couple).

For example, if the current children’s allowance of €140 per month is invested in a Child Savings Plan from when the child is born, it could build up to a fund of over €43,000* by the time the child reaches the age of 18.
* Contributions increase at 2.5% per annum. Investment assumed at 4.1% per annum. Exit tax at 41% applies

Your child could then access this fund and use it to give themselves a better start in life. The Child Savings Plan is designed to enable you to save for the child in this way and this innovative type of plan is available to parents, grandparents, godparents or any adult relation or friend.

The Child Savings Plan is designed to enable you to save for the child in this way and this innovative type of plan is available to parents, grandparents, godparents or any adult relation or friend
Warning: The value of your investment may go down as well as up.
Warning: Benefits may be affected by changes in currency exchange rates.
Warning: If you invest in this product you may lose some or all of the money you invest.

The Tax benefits of the Child Savings Plan

Capital Acquisitions Tax incorporates a Gift Tax and an Inheritance Tax.

  • Gift Tax may apply when a person receives a gift from another.
  • Inheritance Tax may apply when a person receives an inheritance following the death of another. Gifts and inheritances up to a certain value or threshold can be taken without incurring any liability. The thresholds depend on the relationship between the donor and the recipient, and the total value of all gifts and inheritances received from all donors within that donor group.

The current thresholds for each relationship are as follows:

Threshold

Group

Relationship of donor to the recipient (Donor Group)

€335,000

A

Parent

€32,500

B

Child Brother/sister Niece/nephew Grandchild

€16,250

C

Any relationship not listed above

In any year, the first €3,000 is not taxed and does not reduce the threshold. This is referred to as the Small Gifts Exemption. This applies from any one person to another so two parents can gift €6,000 to any one of their children.
The Child Savings Plan is a means of availing of this Small Gifts exemption and investing it in a savings plan.
By legally assigning a Child Savings Plan to your child, your contributions count as gifts to that child. Provided you stay within the Small Gifts Exemption limit, the child will not incur any Gift Tax or have their threshold reduced, either when you make the contributions or when the plan is encashed.

How does the Child Savings Plan work?

To ensure the Child Savings Plan maximises the Gift Tax savings for the child, you first legally assign the policy to the child.  Your advisor will provide you with the documentation necessary to assign the policy.

By assigning the policy to the child, the child will be entitled to the proceeds of the policy because they are the owners of the policy as assignees. You then pay a regular contribution into the plan (minimum monthly contribution of €100) which will be invested in your choice funds. This chosen fund selection will then apply for the life of the plan.

The Advantage of the Child Savings Plan

The plan has been designed to make investing simple for you. When you invest, your money is placed in your choice of funds. Through these funds, you can access a broader portfolio of assets than could be achieved by an individual saver.
You can choose a fund which matches your investor profile, in terms of the level of risk you wish to take, however once you make your choice of funds, the fund choice applies for the life of the plan.

The value of your investment is linked to the value of the underlying assets in the funds you select, and it is important to note that this value may decrease as well as increase. Although investment returns are not guaranteed, you can rest assured that your investment is expertly managed by Life Company’s investment team.

Warning: The value of your investment may go down as well as up.
Warning: Benefits may be affected by changes in currency exchange rates.
Warning: If you invest in this product, you may lose some or all of the money you invest

Take the next step

When it comes to your savings and investments, Advice First is committed to doing the best we can for our customers. So, if you’d like to take the next step, get in touch today.

What is a Financial Broker?
A Financial Broker is an expert in financial matters who works with you to understand your savings and investment goals and objectives, and helps you create a plan to meet those goals. Your Financial Broker will research the options available to you including deposits, investment funds, savings plans and tracker bonds, from the range of companies they deal with.

Why would I need to use a Financial Broker like Advice First Financial?
Choosing the right savings and investment products can be a daunting task. Some savings and investment products may be suitable for you, and some may not.
As your personal and financial circumstances change over time, so will your savings and investment needs. Advice First will be able to explain the choices available to you in simple language allowing you to make an informed decision.

We will guide you through the basic elements of investing – risk and return, diversification, and your attitude to risk – and ensure you understand what’s at stake.

We will get to know you, your personal and financial circumstances, financial plans and your attitude to and capacity for investment risk – products like investment funds, for example, can contain a level of risk that you need to be aware of.

We will guide you through the process of setting up your savings and investment product and help you to make sense of charges, tax on returns and investment risk. We will advise and assist you in developing a well-researched and structured savings and investment portfolio that is compatible with your attitude to and capacity for investment risk and is designed to achieve your goals as far as possible. Ultimately, we will ensure you choose the products best suited to you.

Your Advice First Advisor will guide you through the basic elements of investing

Factors you should consider when choosing a Child’s Savings Plan

When you choose a Child’s Savings Plan, there will be a number of different things to consider:

  • What’s the recommended minimum savings and investment term of the product?
    Some products may be suitable for short-term investment, while others may require you to take a longer-term view. For Child’s savings it is generally up when the child is age 18.
  • What kind of access will I have to my money?

 Some products offer immediate access while others may lock up your money for a particular period. 

  • What is the associated investment risk?
    Some products may guarantee to return your full investment while others may involve a risk of getting back less than you put in.
  • How will my returns be taxed?

The income and/or capital gain you earn may be taxed in different ways, depending on the type of product.
For example, deposit interest may be subject to Deposit Interest Retention Tax (DIRT) while gains from life assurance savings and investment policies are subject to an ‘exit tax’ deduction before payment to you.

Investments can be complex but getting the right fund for you can make a serious difference to your eventual return, especially for longer term savings and investments.

Your Trusted Financial Advisor will be able to guide you through the different options available to you. Based on their knowledge of your financial circumstances, your goals and your attitude to risk, they can help you choose a particular product that will meet your requirements and help you achieve your financial objectives.

Is it better to save or invest?

Saving and investing are both good ways to grow your money, but they are quite different.

So, how do you decide whether to save or invest?

Saving means putting money aside in a bank deposit or regular savings account and earning interest (hopefully) on that money. People generally save for a particular short or medium term goal – a new car, a deposit for a house, or to build up a rainy-day fund – knowing that their Money (capital) is not at risk.

Investing typically means committing your money for a longer period of time in the hope of making more money than you would by saving. There is risk involved. There is usually no guarantee that you will make larger amounts of money or even that you will get all of your capital back.

However, depending on how your investments perform, you could grow your money considerably more than you would by saving.

Will you need to access your money within 5 years?

Are you happy to invest your money for more than 5 years or do you think you might need it sooner? If you think you might need all of your money within 5 years, you might want to consider savings accounts instead of investments.

Can you leave your money untouched for more than 5 years?

If you can commit to investing for more than 5 years, there are a range of options for you to choose from which could potentially provide better returns than deposits in the longer term. This could be important if you want to you achieve longer term goals such as building a child’s education fund or saving towards your retirement. Finding which approach is right for you is important.

When should you consider investing?

You may want to consider starting to invest after you have built up some savings in a ‘rainy day’ fund, paid off any high-interest debts and committed to a retirement plan.

Have you built-up your rainy-day fund?

Before investing, try to save at least 3 months of living expenses so that you are covered if you suddenly have to pay for a sudden unexpected event such as a gap between jobs or having to replace a car.

Set up a direct debit or standing order to pay money into a deposit account or a regular saving account as soon as you get paid. You can start from as little as you like a month, the most important thing is to start.

Have you paid off any high-interest debt?

If you have a high-interest loan or a credit card debt, you are usually paying interest payments as well as repaying the capital. By paying off the high-interest debt in full as soon as possible, you’ll reduce the total amount you owe faster, freeing up money to put toward savings or investing later on.

Are you making pension contributions?

If one of your long-term goals is a comfortable lifestyle in retirement you should contribute the maximum amount you can afford into your retirement accounts.

Are you putting money aside towards kids’ college expenses?

It is important to start putting money aside for your children’s 3rd level education as early as possible if you can. If these expenses are more than 5 years away, you may consider the investment options available.

Investing in funds is straightforward and accessible. Whether you’re new to investing or a more experienced investor, you can choose an approach to suit your financial goals and preferences.

Saving and investing compared

Save

Investing

Ready access to cash

A savings or deposit account gives you access to your cash when you need it. Some deposit accounts have restrictions on the amount, frequency or notice required to make withdrawals.

Usually used for long-term goals

Investing can help you reach long-term goals, such as paying for a child’s education or planning for retirement.

Involves minimal risk

Your funds are covered, subject to limits, by the deposit guarantee scheme.

Longer-to-access invested funds

When you invest your money, you may not have access to your money for a set period of time or it can take a few more days or weeks to access your money compared to a savings account.

Earn interest

You can earn interest by putting money in a savings account, but savings accounts may earn a lower return than investments.

Always involves risk

Investing does not guarantee a return, and it is possible to lose some, or all of the funds invested.

Low returns

Interest rates are particularly low at present but even over long periods of time, the returns from deposits are lower than other investment options and may be lower than inflation.

Earnings potential

Investments have the potential for higher returns than a savings account.

What some of our happy Children’s Education Investment Advice customers have to say…

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Pascal and team were very helpful when we were buying our home. We had a couple of issues with the sale and the team helped push along the sale. Pascal was very knowledgeable and it was a pleasure working with him. Definitely would recommend him to anyone looking for a mortgage.

5
Peter Kelly
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I have to say my experience of working with Pascal was second to none. When looking for my mortgage ,which was a bit complicated Pascal worked very hard and put me in the right direction to solve the situation. He was very professional in all aspects of his work and I can recommend him as a financial advisor.

5
Annie Gallagher
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I Was referred to Pascal as we wanted to switch mortgages. Although we were aware of what was involved, there were tips and advice Pascal gave us that was invaluable. He advised and directed us and offered his services but felt we were capable of completing the switch ourselves. The best money we’ve ever spent.

5
Grainne Sheils
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Pascal and his team are brilliant. They guided us through our mortgage application every step of the way. Very responsive, knowledgeable and friendly service. Would highly recommend.

5
Paul Tully
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We have been dealing with Pascal at Advice First since 2005. He has helped us so much through the years with our mortgage, Life Insurance, Income Protection and financial guidance. Pascal is so kind and explains everything so well. His attention to detail is second to none and always on hand if we need advice. I would highly recommend Advice First Financial Services.

5
Caroline & Gary McLaughlin

Children's Education Fees Planning - FAQ’s

Can I protect against inflation?

Yes, you can choose to protect your savings plan against the effects of inflation. This means that you increase the amount you save every year by up to 5% or the annual rate of inflation, whichever is higher. If you choose this option, the provider will write to you every year giving you the chance to refuse the increase.

What tax do I pay?

The current government levy on life-insurance payments is 1%. Your provider will pay this levy out of the money they receive from you. They will then invest the rest of your money. They will pay you the amount which is left after tax. Under current Irish tax law, you must pay tax on any profit you make on your savings plan. The tax rate is currently 41% (July 2022). If the plan is owned by a company the tax rate that applies may be different.

The provider will collect any government taxes or levies and pass them directly to the Revenue Commissioners. They will pay this tax (if it is due):

  • when you cash in all or part your plan.
  • when you die, if the plan is owned by two people, when the last surviving owner dies.
  • when you transfer ownership of your plan to someone else. There are some exceptions to this; however, you must inform the life company if you transfer ownership of the investment to someone else; or
  • every 8th anniversary from the start of your plan. Where tax is deducted from your fund on each 8th anniversary, this tax can be offset against any tax that is payable on a subsequent encashment.

Can I change my mind?

You want to make sure that you are happy with your decision to invest. But you will have 30 days, from the day when the provider sends you your documents, to change your mind and cancel your plan. If you cancel the plan within the 30 days, all benefits will end, and they will refund your regular payments. If you paid in any lump sum payments, you will get back your original investment less any reduction in the value of your investment that may have happened while the plan was in place.

What happens if I want to cash in the policy early or stop paying premiums?

You can cash in your savings plan at any stage subject to any delay periods mentioned below. If you cash in your plan either fully or partly within the first five years, an early withdrawal charge may apply to the amount you receive.
The provider will reduce your fund value by the early withdrawal charge. This charge may be equal to 5% of the cash in amount in years one to three, 3% of the cash in amount in year four and 1% of the cash in amount in the fifth year. After five years there will be no charge on full or partial withdrawals.

The minimum partial withdrawal is €200 after tax. You may stop making payments at any stage, either temporarily or completely. In certain circumstances, there may be a delay on encashments.
This may be because there are a large number of customers wishing to put money in or encash their fund or part of their fund at the same time, or if there are practical problems buying or selling the assets within the fund or if a fund manager who is responsible for the investment of any part of the fund imposes a delay or if you invest in markets or funds with assets with significant time differences including trading or settlement time differences.

Due to the high cost and time involved in buying or selling properties, a delay of this sort is most likely to happen if you are invested in a property fund (or a fund with a high proportion of property or property related assets). The length of any delay will depend on how long it takes us to buy or sell the assets in the fund. A significant delay would be likely to apply in this situation. Delayed transactions will be based on the value of units at the end of the delay period when the transaction actually takes place.

When there are more customers moving out of a fund than making new investments in it, or there are more customers making new investments than moving out of the fund, the provider may reduce the value of the units in the fund to reflect the percentage of the costs associated with buying and selling the assets of the fund.
The reduction in the value of the affected assets will be different for each fund and is likely to be most significant for the proportion of any fund invested in property. The reduction for any part of the fund invested with fund managers may happen at a different time to the reduction for the rest of the fund.

The value of your investment may go down as well as up. Therefore your cash-in value may be less than the payment you have made.

Are returns guaranteed and can the premium be reviewed?

In most cases no Any illustrations of future performance you receive are not guaranteed. What you get back depends on how your investments grow. You could get back more or less than these projected benefits

What happens if I die?

If you die while the plan is in force, the benefit payable will be 100.1% of the value of your fund, less any tax payable.

What is the term of the contract?

There is no specified term to your Savings plan. It is an open-ended savings plan and will remain in force while you are alive until you decide to terminate it.

Should I invest or save?

Unfortunately, there is the chance that the value of an savings will decrease over time. You may be wondering, “Why not keep my money safe in the bank then?” In a nutshell, if you’re ready to invest, the potential benefits of investing could outweigh the risks.

In the bank, your money is either earning no interest, earning very little interest, or even costing you money. In fact, if your money is earning interest, it’s rarely greater than inflation, meaning that interest isn’t giving you more purchasing power in the long run.
Investing, on the other hand, is an opportunity for passive income. In other words, putting in little to no effort to potentially make money.

Am I ready to invest?

First, take a look at your current financial situation to make sure that you’re ready to get started investing.

  • Do you have any debt that you need to pay off first?
  • Is there a specific time that you expect to need the money back?
  • Do you have enough saved to cover 3-6 months of normal living costs?

What is Volatility?

Volatility is the change in price or value of an asset, especially in the short term. This is completely normal. It can be caused by changes in the asset itself, or changes in the market.
Low volatility = less risk of large changes in value. High volatility = higher risk of drastic ups and downs.

If you have questions or need Children’s Education Fees Planning advice, call 074 9103938 or email now