Giving your grandchildren an RESP for Christmas is a great idea, but you can also give them a cash gift.
RESPs, RRSPs and TFSAs are worthwhile investments, but there are other options as well. Here are some suggestions to consider as Christmas gifts.
Open an RESP
The Registered Education Savings Plan (RESP) allows you to save money tax-free to fund a child's post-secondary education. Thanks to generous government subsidies, it is one of the most advantageous registered savings plans. Therefore, it is in your best interest to open it to your child or grandchild.
André Lacasse, financial planner and financial security advisor, explains that anyone can open and contribute to an individual RESP for a child: parents, grandparents, uncles, aunts, relatives, etc. “It is even possible for a newborn, you just need their social security number,” he says.
However, good coordination is essential because if multiple RESPs are opened for the same beneficiary, only the first deposited contribution will be eligible for the government subsidy. “If the annual cap of $2,500 is exceeded, contributions to other RESPs will not be subsidized,” warns André Lacasse.
However, the grants are heavy, up to 30% for the first $2,500 donated. If the family is considered low-income, the grants are increased and a Canada Learning Bond (CLB) of $500 is paid into the RESP in the first year, then $100 per year thereafter until the beneficiary turns 15.
“Personally and for the sake of simplicity, I recommend giving the money directly to the parents so that they open the RESP,” mentions André Lacasse. Another good reason for this: it is the subscriber who has to take care of the withdrawal processes. Then there is a risk that we will reach an age where we no longer want to dedicate ourselves to these tasks.
If the subscriber is older, there is also the risk that he or she will die before the RESP is withdrawn, and the education savings plan will then end up in the hands of the estate. Ultimately, the amounts are ultimately returned to the beneficiary, but this can be more time-consuming and complex.
A monetary donation to open an RRSP or TFSA
In addition to the RESP, a grandparent could also give their grandchild a monetary gift. The latter can use the amount as a contribution to their RRSP once they have filed an income tax return including employment income for the previous year. There is no minimum age to open an RRSP and it is possible to defer the tax deduction until a year when it is more advantageous.
If the young person is 18 and older, they could also use the donation to contribute to a TFSA. Opening is not possible before this age.
More financial gift ideas
Is the child still relatively young? Another interesting option is to open a savings account in your name and deposit an amount. It's also a good way to teach him to put money aside to do a project, for example. At the same time, we recommend that he pay in part of his pocket money and the cash gifts he received for Christmas or his birthday.
“However, when making donations to minors, special attention must be paid to the income attribution rule. When the amount is invested and income is generated, it is taxed on the donor and not on the child. This regulation, which is intended to prevent tax avoidance, no longer applies as soon as the child grows up,” explains André Lacasse. It also does not apply to capital gains.
Finally, offering an adult child or grandchild an amount to pay off their debts is a great gift. For example, give them an amount to pay off their student loans faster or pay off their credit cards.
By paying off the balance in full or in full, you will not only free yourself from your debt, but also from the interest that quickly accumulates over time. With credit cards they are particularly high and expensive.
So that he doesn't get into debt again, a good conversation is of course necessary. We may take the opportunity to recommend certain tools to you, for example to create and manage your budget.