Last Updated on June 26, 2023 by Parentology
What Happens To The Baby Bonus & Child Development Account (CDA) When Your Child Grows Up?
The CDA is a savings account for your children, set up from the point of birth and lasting until your children are twelve, at which point the account is closed. Any leftover savings are transferred to the child’s Post-Secondary Education Account. The CDA can be used for all sorts of things, including educational fees, medical fees, MediShield premiums, and other health-related items that benefit your child. The government will also match your CDA savings to the dollar up to the maximum amount listed here.
The Annual Closure Exercise for the Baby Bonus CDA has been making rounds recently on social media, with large numbers of parents curious about what this means for their children. If you are here, you likely already know what we’re talking about in terms of the Baby Bonus CDA (Child Development Account), and this article covers more specific details on the programme rather than the basics.
So, the annual closure exercise: This happens once a year and is essentially when your child’s CDA is closed when they turn 12. As noted above, any excess funding is generally returned to a different account, but many parents are anxious about how this works and what this may mean.
In general, this is how it will work. You should have received a letter from the Ministry of Social and Family Development noting that your child/ward’s CDA is about to be closed and that there is a balance to be returned. The closing bank statement and balance should have been sent to you from the bank. Unused funds are first automatically credited to your child’s Post-Secondary Education Account (PSEA) – however, there is a maximum amount that can be transferred based on the government co-matching cap, Child Development Credit, and accrued interest. This information can be found on the Baby Bonus Online website, so you should check your account to see the relevant information.
Any excess funds outside of the above cap are returned to you. The letter from MSF will notify you that you have excess funds to be credited to you, and will come with instructions. You can go through a form on the Baby Bonus Online website called ‘Crediting of excess CDA balance’. If you are unable to log in, you can use this extra form for the same purpose.
Trustees, third parties, and divorce cases
The CDA has a nominated trustee attached to it – oftentimes it is a spouse but it may also be a third party such as a grandparent. The Child Development Co-Savings Act (CDCA) defines the parent who has ‘care and control of the child’ as the CDA trustee. Any excess funds are returned to the bank account as nominated by the trustee. You do not need to change the trustee to change the bank account but should do so if the care and control arrangements of your child have changed as well. Changing trustees can also be done on Baby Bonus Online, but be sure to do it before your child’s CDA is closed on 31 December of the year your child turns 12.
If you are going through a divorce and the care and control has been changed either by mutual agreement or court order, and the CDA is yet to be closed, you can write the MSF with supporting documents to ensure that the excess funds are returned to you as the new trustee.
The short and long of it is really this: whoever has care and control of the child will also be the trustee reflected in the CDA arrangements, and will be the person to nominate a bank account for potential excess fund crediting. To address any changes you can either change the trustee information on the Baby Bonus Online website, write to them via email, or walk into one of their centres to obtain further information.
How long does it take to receive the crediting of balance?
It generally takes about 14 days for the balance to be sent to the nominated bank account, from the moment bank details are submitted online.
What can I use the PSEA funds for? Does it also have co-matching from the government?
If you have not saved up to the government matching cap at the point of transfer, the co-matching will continue with the PSEA account until your child turns 18 or until the co-matching cap is reached!
PSEA funds can be used for post-secondary education in ITE, polytechnics, and local universities.
Are you a young parent looking for expert financial planning advice? Our dedicated team of financial advisors is here to help you navigate the complexities of saving for your child’s future. Whether it’s maximizing your Baby Bonus and CDA, understanding post-secondary education funding options, or planning for your family’s long-term financial goals, our advisors are ready to assist you. Contact us today to schedule a consultation and secure a brighter future for your children.