Today, I want to show you how you could potentially pocket £2,000, for free, in the next two months by taking advantage of the Lifetime ISA’s bonus top-up system. If you’re saving for retirement and have some money to invest right now, this strategy could definitely be worth considering. First, though, let’s recap how the Lifetime ISA works.
The Lifetime ISA
Open to those aged 18-39, the Lifetime ISA is a savings and investment account that allows you to invest in a broad range of stocks, funds, and other investments on a tax-free basis.
Aside from the fact that all capital gains and income are tax-free within the account (which is a huge plus) the other key benefit of the Lifetime ISA is that contributions come with generous top-up bonuses from the government – for every pound invested, up to the annual allowance of £4,000, the government will provide a bonus payment of 25p. In other words, if you contribute the full £4,000 annual allowance into the account, you’ll receive a £1,000 bonus.
The beauty of the Lifetime ISA bonus top-up system is that it’s so easy for investors to receive cash bonuses. Simply make a contribution into your Lifetime ISA and your ISA provider will do the rest. With most providers, bonuses tend to arrive just a few weeks after contributions are made, meaning that savers can really turbo charge their retirement savings quickly.
On the negative side, the Lifetime ISA does have some restrictions. For example, savers cannot touch their money (without harsh penalties) until they either turn 60 or buy their first property. This means that the account is not as flexible as other ISAs. However, overall, the Lifetime ISA offers a lot of appeal from a retirement saving perspective, in my view.
So, how can savers pocket £2,000 in the next two months then?
ISA deadline trick
The key to this £2,000 trick lies in the fact that the 2018/2019 ISA allowance year ends on 5th April (just weeks away now).
What this means is that if you qualify for the ISA and you’re happy to invest your money until age 60 now, you could potentially invest £4,000 before the ISA deadline and pocket a £1,000 bonus just weeks later, and then invest another £4,000 after the deadline and pocket an extra £1,000 just weeks later.
The result would be a total bonus of £2,000 from an £8,000 investment, essentially taking your £8,000 to £10,000 (a 25% risk-free return) almost instantly. When you consider that the FTSE 100 has returned around 1% over the last year (not including dividends), a near-instant return of 25% on your money is a pretty good deal if you ask me.
Act before 5th April
Of course, to pocket the £2,000 bonus, savers could also contribute the first £4,000 before this year’s ISA deadline and then another £4,000 any time before next year’s ISA deadline. In other words, as long as you take advantage of this year’s annual allowance and act before 5th April, there’s no immediate rush to invest next year’s contribution. That said, the earlier you get your hands on your bonus money, the more time there is to put it to work in the market.
