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How the Lifetime ISA could get you £2k for free in the next two months

If you’re saving for retirement, there are some brilliant savings and investment accounts available that can help to boost your wealth. The Lifetime ISA is a great example – save £4,000 into this account and the government will give you £1,000 for free. What a fantastic deal.

You could even do better than this though. If you’ve yet to contribute to a Lifetime ISA this financial year, you could potentially pick up £2,000 for free in the next few months, using what I call the ‘ISA deadline trick’. Here, I’ll show you how it’s possible to pick up £2k for free from the Lifetime ISA in the space of just a few months.

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The Lifetime ISA 

Before I explain, it’s worth recapping how this ISA works. Open to those in the UK aged between 18 and 40, 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. They’re offered by a range of investment providers, including Hargreaves Lansdown and AJ Bell

Aside from the fact that all gains are tax-free, the big advantage of this ISA is that for every pound you contribute (up to the annual allowance of £4,000 per year) the government will give you a 25p bonus, up to age 50.

On the downside, the Lifetime ISA does have some restrictions to be aware of. Savers cannot access their money (without harsh penalties) until they either turn 60 or buy their first property. This means the account isn’t as flexible as other ISAs such as the Stocks & Shares ISA.

Overall, however, the Lifetime ISA has the potential to be a very effective retirement savings account. With a cash bonus of £1,000 up for grabs every year up to the age of 50, this ISA can really help you turbo-charge your retirement savings. 

£2k ISA deadline trick

Now, the annual ISA deadline is the 5 April, which is just weeks away. This means if you have money to invest for retirement right now, and you haven’t yet contributed to a Lifetime ISA this financial year, you could potentially pick up £2,000 in bonuses in just a few months.

All you need to do is contribute £4,000 into a Lifetime ISA before the 5 April ISA deadline, and then contribute another £4,000 into the ISA shortly after the deadline. The result is that you’d pick up two £1,000 bonuses, taking your £8,000 contribution to £10,000 in a very short period of time.

Of course, to pick up £2k in bonuses, you could also contribute £4,000 before this year’s ISA deadline and another £4,000 any time before next year’s deadline. However, in my view, the sooner you get your hands on your bonus money the better. 

Investment ideas  

Once you pick up your bonus, you’ll want to put that money to work. You have plenty of options. 

One would be to invest in a top investment fund such as Fundsmith. This fund has roughly doubled investors’ money over the last five years, despite the fact that stocks have fallen recently. Another option is to go with a low-cost tracker fund that tracks an index. Alternatively, you could put together a portfolio of high-quality stocks yourself. There are some great opportunities at the moment. 

The choice is yours. If you’re looking for investment ideas, you’ll find plenty right here at The Motley Fool. 

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Edward Sheldon owns shares in Hargreaves Lansdown and has a position in Fundsmith. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.