KiwiSaver for the self employed - are there any advantages?

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Forums › Finance and wealth management › KiwiSaver for the self employed - are there any advantages?

timmmay

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#87655 3-Aug-2011 15:04

Other than the $1000 kick-start, is there any advantage in KiwiSaver to self employed people over a standard savings scheme? The key disadvantage is not having access to your savings.

I was under the impression that you got a tax credit that could offset your income taxes, but my accountant tells me it doesn't work like that. She said "The tax credits from government is added to your Kiwisaver investments and not a credit against your income.". I don't really know what this means. Does it means you'll end up with more money after 10 years than you would if you weren't using KiwiSaver?

So, should I keep going with Kiwisaver, or should I use a regular savings scheme?

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#501416 3-Aug-2011 15:18

there is the small amount that the govt adds each year as well... but by and large kiwisaver isn't doing that well and is probably not the greatest idea for self employed

mattwnz

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#501417 3-Aug-2011 15:19

timmmay: Other than the $1000 kick-start, is there any advantage in KiwiSaver to self employed people over a standard savings scheme? The key disadvantage is not having access to your savings.

I was under the impression that you got a tax credit that could offset your income taxes, but my accountant tells me it doesn't work like that. She said "The tax credits from government is added to your Kiwisaver investments and not a credit against your income.". I don't really know what this means. Does it means you'll end up with more money after 10 years than you would if you weren't using KiwiSaver?

So, should I keep going with Kiwisaver, or should I use a regular savings scheme?

I don't know what your accountant means. However a self employed person can voluntarily deposit about $20 per week into kiwisaver, and the government will match that up to about $1020 per year (or some amount like that). That is however halving after the budget changes. So over 5 years if they didn't make the kiwisaver changes, you would have about $11,000 saved not including interest, and you would have only paid in $5000 of your own money. That is a very good return. You can also take out some of it after 3 years to buy your first house.

They are suggesting that they are going to automatically enroll everyone in kiwisaver soon, and people will need to opt out if they don't want to be in it. I think if they are going to pull that sort of trick, they should just make it compulsory.

I've signed up for the government contributions and am self employed, and have the moeny in a 100% cash fund, so there is no risk of it losing money if there is another financial crisis..

richms

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#501427 3-Aug-2011 15:43

The good thing with being self employed is if they do make it compulsory you can shrink your income so much that the amount that they force you to invest becomes small.

Richard rich.ms

timmmay

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#501433 3-Aug-2011 15:48

Do the government credit actual money, or is it just some kind of a tax credit? I glanced at my last kiwisaver statement, from memory the amount of money in there is pretty much the same as what I put in - $1020 a year or so, plus the kickstart.

TheUngeek

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#501494 3-Aug-2011 16:40

Hell with the govt and employer contributions and $1000 kick start so far I've about doubled my money in Kiwisaver.

bazzer

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#501498 3-Aug-2011 16:45

The "member tax credit" is a misnomer. It has nothing to do with tax. It's simply the government matching your contributions up to a maximum and this gets put into your kiwisaver account once per year sometime after 1 July.

Currently, the maximum is $1042.86 (matched dollar for dollar). From 1 July this year, the Government is paying 50c to the dollar up to a maximum of $521.43. So, to get the maximum advantage you just have to contribute $1042.86 before 1 July next year.

Unless you won't have the cash, I wouldn't bother making contributions during the year, just a lump sum at the end.

wongtop

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#501500 3-Aug-2011 16:48

timmmay: Do the government credit actual money, or is it just some kind of a tax credit? I glanced at my last kiwisaver statement, from memory the amount of money in there is pretty much the same as what I put in - $1020 a year or so, plus the kickstart.

Provided you contribute $1020 or more a year the govt will also put in $1020. From memory they work on a 1 July to 30 June year and make a lump sum payment in about August (i.e. if you put in $1020 in the year ending 30 June, they should put in a lump sum in your Kiwisaver account sometime soon). From this year onwards the amount halves - i.e. they will only match 50c to the dollar and the maximum payment in August next year will be circa $500.

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timmmay

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#501566 3-Aug-2011 19:07

Coincidentally I received my kiwisaver statement today. I've been a member for about 14 months (I joined a month before the 30 June cutoff a year and a bit ago).

I've contributed $2300, there was the one off $1000 kickstart, there's a $260 member tax credit for the 2010 tax year, and investment earnings of $200. Confusingly, the $1000 kickstart isn't included in my balance.

It looks to me that other than the kickstart, the benefit of being in kiwisaver is $260/year. I think that drops to $130/year this year.

The government definitely isn't matching me dollar for dollar, that's what employers do for their staff, but since i'm not employed I don't get that. I think the government contribution is the credit is the tax that I would've paid on my $1300 odd contribution, the $260.

wongtop

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#501616 3-Aug-2011 20:31

timmmay: Coincidentally I received my kiwisaver statement today. I've been a member for about 14 months (I joined a month before the 30 June cutoff a year and a bit ago).

I've contributed $2300, there was the one off $1000 kickstart, there's a $260 member tax credit for the 2010 tax year, and investment earnings of $200. Confusingly, the $1000 kickstart isn't included in my balance.

It looks to me that other than the kickstart, the benefit of being in kiwisaver is $260/year. I think that drops to $130/year this year.

The government definitely isn't matching me dollar for dollar, that's what employers do for their staff, but since i'm not employed I don't get that. I think the government contribution is the credit is the tax that I would've paid on my $1300 odd contribution, the $260.

The govt wont have matched your contributions for the year to 30 june this year yet. They pay it all as a lump sum in arrears in aug/sept if I remember righty. All they would have paid so far is the kickstart and matched you first 2 months contributions. You should get a lump sum to match the next 12 months contributions (up to circa $1000) sometime soon.

timmmay

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#501620 3-Aug-2011 20:37

wongtop:
timmmay: Coincidentally I received my kiwisaver statement today. I've been a member for about 14 months (I joined a month before the 30 June cutoff a year and a bit ago).

I've contributed $2300, there was the one off $1000 kickstart, there's a $260 member tax credit for the 2010 tax year, and investment earnings of $200. Confusingly, the $1000 kickstart isn't included in my balance.

It looks to me that other than the kickstart, the benefit of being in kiwisaver is $260/year. I think that drops to $130/year this year.

The government definitely isn't matching me dollar for dollar, that's what employers do for their staff, but since i'm not employed I don't get that. I think the government contribution is the credit is the tax that I would've paid on my $1300 odd contribution, the $260.

The govt wont have matched your contributions for the year to 30 june this year yet. They pay it all as a lump sum in arrears in aug/sept if I remember righty. All they would have paid so far is the kickstart and matched you first 2 months contributions. You should get a lump sum to match the next 12 months contributions (up to circa $1000) sometime soon.

I've been in kiwisaver for more than a year. If that were true the previous years credit would've come through last year.

wongtop

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#501647 3-Aug-2011 21:25

You said you got $260 for the 2010 tax year. What I am saying is that the govt hasn't paid out anything for the 2011 (to June 30) tax year yet. That should be coming out soon.

timmmay

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#501649 3-Aug-2011 21:27

Yeah, that $260 was for the 2010 tax year, which isn't what was suggested above - matching my contribution. It's basically refunding the income tax I paid on that money.

So kiwisaver contributions are tax free, but they don't match your contributions - that's what employers do, not the government.

mattwnz

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#501669 3-Aug-2011 22:11

timmmay: Yeah, that $260 was for the 2010 tax year, which isn't what was suggested above - matching my contribution. It's basically refunding the income tax I paid on that money.

So kiwisaver contributions are tax free, but they don't match your contributions - that's what employers do, not the government.

I think you are getting confused. The government DO match your contributions, but only up to a maximum of $1042.86 (matched dollar for dollar) per year. SO if you are self employed, you only need to deposit $1042.86, and eventually the government will put in their $1042.86 too. So over a year you get 100% interest if you are only putting in $1042.86. This will however change next year, where you will only get effectively 50% interest, but thats still pretty good. I suspect all these incentives will be removed if it becomes compulsory. I would suggest you google Mary Holm and kiwisaver, as she has written a lot of articles about it.

timmmay

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#501674 3-Aug-2011 22:21

The information around isn't that good. One this page on the kiwisaver website it doesn't mention matching government contributions, just tax credits, which I got - they're about 25% of what I contribute. It does mention complusary employer contributions, which is where the main benefit is for people who work for someone else.

On this page on the ASB Bank website it does mention matching government contributions.

When I asked my accountant she said there were pretty much no benefits to self employed people in the KiwiSaver scheme, other than the kickstart. My accountant (a junior associate at a firm) isn't always right about things though...

mattwnz

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#501679 3-Aug-2011 22:43

timmmay: The information around isn't that good. One this page on the kiwisaver website it doesn't mention matching government contributions, just tax credits, which I got - they're about 25% of what I contribute. It does mention complusary employer contributions, which is where the main benefit is for people who work for someone else.

On this page on the ASB Bank website it does mention matching government contributions.

When I asked my accountant she said there were pretty much no benefits to self employed people in the KiwiSaver scheme, other than the kickstart. My accountant (a junior associate at a firm) isn't always right about things though...

This explains the benefits of kiwisaver to the self employed http://www.guide2.co.nz/money/questions/kiwisaver-and-saving/im-becoming-self-employed-should-i-stay-in-kiwisaver/6/18512

You may want to forward it to your accountant too.

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