5 Smart Ways to Invest for Your Kids and Avoid Tax Traps (with Financial Adviser Daisy Magor)

By Molly Benjamin, Founder of Ladies Finance Club

Listen to the full podcast here.

Disclaimer: This article provides general information only and is not intended as personal financial advice. We recommend speaking with a licensed financial adviser (like Daisy) who can help you understand what’s right for your situation. 

Thinking about investing for kids and building a solid financial foundation for their future? Before you open a brokerage or savings account in their name, it’s important to understand the tax implications, money management responsibilities, and long-term investment strategies that go with it. In this episode of Get Rich, Molly sits down with financial adviser Daisy Magor to unpack five of the most common ways to invest for children in Australia and how to avoid costly tax mistakes.

Whether you're a new parent, a savvy aunt, or a generous grandparent, this episode is packed with practical personal finance education to help you grow wealth and financial literacy for the next generation.

1.Investing in Your Own Name 

This is the simplest and most common approach to saving for children. Just open an investment account in your name and earmark the funds for your child’s future.

Tax Implications: All income and capital gains are taxed at your marginal tax rate. If you hold investments for over 12 months, you may be eligible for the capital gains tax discount.

Money Management Tip: If you have a partner, consider whose name has the lower tax rate to make your investing for kids strategy more tax-efficient.

2. Minor Investment Accounts 

Minor investment accounts are often promoted as an easy way to start investing for kids, but they come with serious tax consequences.

Tax Implications: These accounts usually require a minor’s Tax File Number (TFN), meaning distributions and capital gains are taxed at punitive rates up to 66%.

Daisy’s Verdict: Minor investment accounts can be misleading. The tax traps and confusing reporting requirements make them the least preferred option when saving for children.

3. Education Bonds

Education bonds are a smart, long-term investment strategy if you’re specifically saving for your child’s schooling costs.

How They Work: Parents contribute funds into the bond, which is invested across multiple assets. The investment grows in two components—capital (your contributions) and earnings.

Tax Advantages: When used for approved education expenses, education bonds can offer tax-free withdrawals and rebates, making them one of the most tax-efficient structures.

Money Management Insight: These are complex products. For effective use, Daisy recommends working with a financial adviser.

4. Superannuation Contributions for Children 

Using superannuation to save for your kids? It’s unconventional but it has its place.

Two Ways to Do It:

• Open a child’s super account and contribute to it (they can access it under the First Home Super Saver Scheme or at retirement).
• Set up a secondary super fund in your own name, intended to be gifted when you reach retirement.

Tax Benefits: Superannuation funds are taxed at just 15%, making them a tax-effective vehicle for long-term investing.

Best For: Grandparents or forward-planning parents interested in generational wealth transfer.

5. Family Trusts 

A family trust is the most formal and secure option when it comes to investing for kids. It allows for greater control, flexibility, and protection of assets.

Why Use It: Family trusts are ideal for high-net-worth families who want to protect wealth, manage risk, and have control over when and how assets are passed on.

Tax Considerations: Income must be distributed annually. If allocated to a minor, high minor tax rates apply unless properly managed.

Investment Strategy Note: A family trust is best suited when you are investing larger sums or have complex estate planning goals.

Daisy’s Pick: The Option to Avoid? Minor investment accounts. While they seem straightforward, their tax implications make them a risky choice. Some families find that investing in their own name and transferring funds later can be a simpler approach.

Beyond the Dollars: Teaching Financial Literacy Investing for kids isn’t just about growing wealth, it’s about fostering strong money management skills early. Daisy suggests teaching your children the basics of budgeting, saving, and giving to build their financial literacy.

Try This: Split pocket money into three jars or accounts labelled "Spend," "Save," and "Give." This helps reinforce positive habits around money from a young age.

Opening a Bank Account for Your Child 

Most banks offer kids’ bank accounts with a parent or guardian acting as trustee. There are no capital gains tax issues with these accounts, but any interest earned will usually need to be reported using the minor’s TFN.

From basic investing in your own name to more advanced structures like education bonds, superannuation, or a family trust, there are plenty of strategies to consider when saving for children. The best approach depends on your financial goals, how much you plan to invest, and your level of comfort with complexity and tax planning.

To hear Daisy Magor explain these five options in detail and share expert insights on financial literacy and money habits for kids, tune into the full episode now.

This podcast provides general information only and is not intended as personal financial advice. We recommend speaking with a licensed financial adviser who can help you understand what’s right for your situation.

If you would like to speak with Daisy please click here.