Read time: 3-4 minutes.
PROBLEM: Timing Your KiwiSaver Withdrawal—Which Option Suits You Best?
As you're gearing up to buy your first home, your KiwiSaver savings likely represent a substantial portion of your deposit. Deciding whether to tap into these funds for the initial deposit or wait until settlement day can be complex. Withdrawal from KiwiSaver requires meeting certain criteria, like having a signed sale and purchase agreement. Without proper timing, you might struggle to access your funds when needed.
What's the optimal choice? Let's delve into the pros and cons of each option.
OPTION 1: Using Your KiwiSaver for the Initial Deposit
PROS: Why Withdraw KiwiSaver Funds Early?
- Essential for Securing the Deal: If most of your deposit is tied up in KiwiSaver, accessing it for the initial deposit might be necessary to get the property under contract.
- Strengthening Your Offer: Sellers often favour offers with larger deposits. Using your KiwiSaver can make your offer more attractive.
- Eases Settlement Process: Handling your KiwiSaver withdrawal upfront reduces last-minute stress during settlement, as financial arrangements are already in place.
CONS: Consider These Drawbacks
- Forfeited Contributions: By withdrawing early, you miss out on your and your employer's KiwiSaver contributions during the typical 4-6 week settlement period—or longer if there are delays.
- Administrative Hurdles: Releasing KiwiSaver funds can be time-consuming. Special clauses need to be added to the sale and purchase agreement (with your lawyer's assistance), and you must act swiftly to meet deposit deadlines.
OPTION 2: Using Your KiwiSaver at Settlement
PROS: Advantages of Waiting
- Ample Preparation Time: There's less immediate pressure to complete KiwiSaver withdrawal forms, giving you flexibility in financial planning.
- Accumulated Savings: Continued contributions up to settlement day can boost your KiwiSaver balance, maximizing your savings.
CONS: Potential Pitfalls
- Risk of Delayed Funds: Initiating the withdrawal process too close to settlement may result in funds not being available on time, potentially derailing the purchase.
- Market Volatility: If the market declines between signing and settlement, your KiwiSaver balance could decrease, leaving you with insufficient funds.
TL;DR: Making the Right Choice
Whether to use your KiwiSaver for the initial deposit or wait until settlement depends on your individual situation. If your deposit relies heavily on KiwiSaver, accessing it early might be necessary to secure the property. Waiting allows for additional savings but requires careful timing to ensure funds are available when needed. Consult your lawyer to decide the best course of action.
