Kiwisaver: Tax credit worth saving for

You need to be in Kiwisaver for three years before you can use the money for a first home.

Q. A month ago, we bought our first home. We were unable to use our KiwiSaver funds because we have only been members for a year. When we have been contributing for three years, can we then withdraw our funds to help pay for what will still be our first home?

It must be frustrating to see money sitting in KiwiSaver that you could put towards knocking back your mortgage, but it isn't an option. You need to be in KiwiSaver for three years to be able to dip into your funds for a first home.

At that point you can withdraw all your contributions, plus any member tax credits and investment earnings, leaving behind the last $1000.

The money is withdrawn and paid straight into your lawyer or conveyancing practitioner's trust account to pay the vendor on settlement day.

KiwiSaver rules are clear that you can't already own property or, with limited exceptions, have owned property in the past, when you make a first-home withdrawal, which rules out using KiwiSaver to pay the mortgage on an existing home.

Given that first-home withdrawal isn't an option, let's look at the member tax credit. This boils down to money from the Government for everyone in KiwiSaver between the ages of 18 and withdrawal eligibility - generally 65.

Up to $521 is paid each year to KiwiSavers who contribute $1042 to their accounts. Adding $1042 is about $20 a week, but if that is still a stretch, the member tax credit is 50 cents on every dollar you contribute up to that $1042 mark.

The calculations are made on contributions between the start of July and end of June every year and your provider should update you on whether you have contributed enough to get the full member tax credit well before the end of the "KiwiSaver year".

Over time the member tax credit can make a real difference. The Commission for Financial Capability - the organisation behind the Sorted website - has run a couple of calculations.

A 30-year-old earning $50,000, contributing 3 per cent, matched by their employer, would have $196,215 by age 65.

Without the member tax credit the balance would be $175,607 - a difference of $20,608. The member tax credit adds up to $18,219, plus $2389 in investment earnings would be missed.

A 50-year-old on $80,000, contributing 3 per cent, matched by their employer, would have a balance at age 65 of $81,889.

Without the member tax credits, the balance at that age would be $73,945 - a difference of $7944 made up of $7821 from member tax credits and $123 in investment earnings.

Not to be sniffed at, I reckon.