I am thinking of gifting a friend's newborn with a $1000 investment in Spaceship Voyager's Universe portfolio. It is a new fund with ZERO fees up to $5000. No other hidden fees involved. The annual management fee moves to 0.10% after $5000. I like it because it provides a platform that is well suited to the millennial generation and beyond and since my investment is below $5000, it will be free. There are no in-out/brokerage fees.
I understand there are now high taxes imposed on children's unearned income (? income taxed at 66% once it exceeds $416pa). My question is, will this be imposed on the income from the portfolios dividends? And what kind of share portfolio value would yield more than $416 a year (I know this could be a wide range but am just curious if anyone had a rough idea)?
I have been told insurance bonds are another alternative and that low-cost ETFs are another option. I just wanted a platform that would be more targeted towards the younger generation and love how simple the platform provides a way to learn a little bit about different stocks on a mobile device.
P.S if anyone is interested in trying the platform themselves, if you use this link (www.goo.gl/sBDuCa) we will both get $20 to invest in the portfolio. I think if you sign up through the app without the link like I did, you won't get any free money to invest.
That is very generous of you gifting your friends child some money.
Firstly, to clear up the misconception about minor tax rates, the 66% tax rate applies for income from $417 - $1,307, then above that is taxed at the top marginal tax rate (45%). The 66% tax rate just makes up for the first $416 tax free, so essentially once it goes over $1,307 you've effectively paid tax at 45% on the full income.
Also, I'll quickly point out that I am NOT a fan of insurance bonds. Although insurance bonds have a flat tax rate of 30% (which is less than most peoples marginal tax rate), what is often ignored is that internally within the bond, capital gains are taxed at 30% WITHOUT the 50% CGT discount that you get when you invest personally. On top of that, there is always a small additional fee to invest through an insurance bond, and once you factor in those 2 things, it is almost always better investing directly and paying tax at your marginal tax rate (see my blog on is here https://glennsfinancialeducation.blogspot.com/2015/10/what-are-tax-benefits-of-insurance.html )
With regards to the spaceship investment, I must meet the person who is running that fund with all the costs that would go along with it, charging no fees, and also giving away $20 to people when they refer others. How generous of them. Even for amounts above $5k, where the fee is .10%, that is less than what Vanguard charge on their low cost index fund with the huge economies of scale they have. Look, I don't understand fully what is going on there, but it doesn't add up to me and when something doesn't make 100% sense, I stay away. I'm not suggesting it's shonky or anything like that, just I doubt it is as good as they make it out to be.
Out of all the suggestions there, my preference would be the ETF. Purchase a Vanguard ETF (maybe one of their diversified funds) and just let it be. Sometimes these funds might turnover a little bit within the fund an distribute a larger amount than just income - so if you were to have a year where it distributed 8%, you could still have $5,000 invested before exceeding the minor $416 tax free threshold. It would take sometime for $1,000 to turn into $5,000 - or, depending on your situation, you might just buy it in your name, with the view to sell and give them the cash in 20 years.
The income from the portfolio WILL be assessable income in the hands of your friends child. The tax rates apply to all forms of income.....but the income is not likely to be high enough to give rise to a tax liability.
If you are looking at an investment of $1000, then there wont be an investment platform on earth that will yield you $416 in assessable distributions.......not without taking on a ridiculous amount of risk anyway.