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KiwiSaver benefits from age 18


Q.        Our son will be 18 next month so will become eligible for member tax credits.  If he contributes $1042 before 30 June will he get the full member tax credits of $521? Does he have to make these contributions himself or can we help them? He works part-time while studying so his KiwiSaver contributions are quite small.

A.         Turning 18 is an important milestone for KiwiSaver members. Not only do they become eligible for Member Tax Credits (MTC), they should also start getting 3% employer contributions to their KiwiSaver (some employers make contributions on behalf of younger members, but it is optional).

Because your son turns 18 in March, he will not be eligible for full MTC at the end of June. March to June is one third of the year, so he will be eligible to up to one third of MTC or approximately $170. To receive this he will need to contribute twice as much, about $340. It is worked out on the number of days in the year to 30 June that he is 18, so the exact amount will depend on his birth date. 

If the contribution from his part-time jobs is not enough, he can top up his account before the end of 30 June. If his income fluctuates he will need to work out what his contributions will be, and pay in enough to make up the difference. Only his own contributions count towards MTC, not the employer contributions. And don’t leave it till the last minute - allow up to a week for the fund manager to receive and process the money. 

It is up to the fund manager (and the individual investor) to make sure that each member receives the correct MTC. In July the fund managers send Inland Revenue a list of their contributing members, to claim the correct MTC on their behalf. They have to exclude members who are living overseas, are under 18 or over 65. This process is not foolproof, so everyone with a KiwiSaver account should check their balance in August or September to make sure that they have received the correct amount. This is particularly important if they have changed providers during the year, as the new manager may claim only for the length of time that the member has been with them. It is not too difficult to correct, but the onus is on each KiwiSaver member to check their own balance to make sure it is right.

If your son can’t afford to top up his account himself, you can certainly do it for him and it will still count towards MTC. Anyone can make payments into a KiwiSaver account - either via Inland Revenue or directly to the fund manager. It is becoming quite a popular option for grandparents who would like to help their grandchildren to save for their first home. 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send your KiwiSaver questions to shelley.hanna@peak.net.nz