What to do with a lump of cash

Last updated 05:00 08/12/2013
LUMP SUM? For most people it make sense to reduce debt before bumping up the KiwiSaver balance.

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Can . . .  I make a lump sum deposit into KiwiSaver?

Yes, and people do it from time to time.

Say you got a bonus or won some money, had no need of it immediately, and wanted to put it beyond temptation. You could opt to put it into your own or someone else's KiwiSaver stash.

The figures show it is happening. For example, in July there were $6.8 million voluntary contributions, $1.4m in August, $1.3m in September and $2.3m in October.

Some of this money would be going into people's own KiwiSaver accounts. Others would be gifts to children and grandchildren.

Is it a good idea?

Salting money away until retirement generally is the bedrock of a savings plan and there's nowhere beyond temptation better than KiwiSaver because the money is locked in until the account-holder turns 65, with some exceptions.

Hardship is one. The death of the account-holder is another.

Still another is when the account-holder goes to buy their first home.

If you wanted to help the kids save towards a first home, chipping money into KiwiSaver isn't a bad way of doing it as the cash can be liberated when needed for that first home deposit, and they may even qualify for the first home buyers subsidies.

There is no cost to making voluntary donations. There are various ways of doing it, but the easiest is to phone your KiwiSaver scheme provider and ask them to tell you how to do it.

If it is a bank, just call them or pop into a branch. They have forms on their websites too.

The only note of caution that must be sounded is that the money is well and truly locked up. If you change your mind or find you suddenly need that money again, you won't be able to get it back.

For most people with a mortgage, it makes more sense to use the money to reduce debt before bumping up the KiwiSaver balance.

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- Sunday Star Times

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