Grandparents share a doting relationship with their grandchildren. Most grandparents want to help out their grandchildren one way or the other. Some offer help by taking care of their grandchildren while their parents are busy at work. Others showed their love by giving financial assistance.
The reason for giving financial assistance might vary. Some grandparents don’t want their grandchildren to face the same challenges they had encountered during their education, while some don’t want their grandchild to bear the burden of loan debts.
There’re various options such as life insurance, RESP contributions, savings account, and other investment schemes. You can also invest in a child plan. Read more to find out how.
Future savings can help grandchildren become financially stable
Before you get excited and start investing in any funds, you’ll need to consider a few factors that might impact your grandchild’s future.
Who owns the funds in the investment period?
First, it makes a significant difference whether the funds you’re investing in are in your name or your grandchild’s name.
The money you save or earn through investment might result in tax implications or hurt your grandchild’s education-related financial aid application. This is mostly possible if the funds are in your grandchild’s name.
Who has access to the funds?
However, if you invest the funds in your grandchild’s name, they may gain access to and use the funds before you intend them to. Furthermore, they may use the funds for purposes different than those for which they were intended.
After your grandchild becomes a legal adult, they can generally access any money in their name. Therefore, they can utilize the funds the way they see fit.
When you keep the funds under your name or include your grandchild as a beneficiary (life insurance, trust funds, etc.), you can be assured the funds are used for the correct purpose (business startups, education, etc.).
This way, you won’t be required to deal with a teenager blowing the precious dollars on a new car or a Louis Vuitton purse.
5 investment ideas to financially secure your grandchild’s future
To provide financial security to your grandchild, investing and saving are two of the most crucial approaches, especially as education expenses continue to climb. Thankfully, these investments or savings schemes don’t need to be complicated. You can help your grandchildren without exhausting your pension funds.
The key to growing your funds before your grandchildren attend college or establish a business is by starting early. Here are 5 investment ideas that you can use to save precious funding for your grandchild’s future.
Life insurance
Life insurance is the simplest investment approach to ensure that your grandchild’s future remains financially secure.
● Various insurance plans allow you to gift tax-free funds for your grandchildren.
● The funds earned from the insurance plans can be used by your grandchild for any financial requirement such as medical, education, business funding, making the down payment for their first house, etc.
● Your child will receive annual tax-free dividends for a lifetime.
Open an RESP account
An RESP account is an education funding scheme that allows anyone to accumulate funds for a child’s higher education. This scheme is supported by the Canadian Government.
You can open an RESP account from any financial institution and start contributing. However, these investments don’t offer any tax benefit to the contributor. The Canadian Government also contributes up to a certain limit.
A child can become the beneficiary of multiple RESP schemes. However, the lifetime contribution is capped at $50,000 for each child. Therefore, tracking multiple RESPs can quickly get complicated.
Coordinate with your children if they’re already contributing to an RESP. You can indirectly help your grandchildren by providing financial assistance to your children. However, the RESP funds can only be used for educational purposes.
Gift cash through RESP
Cash deposited into your grandchildren’s RRSP (Registered Retirement Savings Plan) can compound tax-deferred until they withdraw the funds for any purpose.
RRSP funds can be used for various investments:
● Several Home Buyer’s schemes allow first-time homebuyers to use money from their RRSP.
● Many education schemes allow you to withdraw money for educational purposes.
However, before investing in RRSP, ensure that your grandchild has enough room for contribution in the future.
Set-up trust funds
A trust fund is an excellent way for grandparents to gift substantial funds to grandchildren.
A trust fund encompasses a three-way agreement between a beneficiary (the person who gets the money), the settlor (one who contributes to the fund), and the trustee (the person involved in fund management).
The best part about trust funds is that no “founding document” is required, unlike a corporation.
Contribute to your grandchild’s TFSA account
Once your grandchildren are 18 years old, they’re legally eligible to open their own Tax-Free Savings account (commonly known as TFSA). If they require extra funds for education apart from RESP or their business funding requires a top-up, contributing to their TFSA account is an excellent way to support them financially.
Besides providing tax-free investment growth, TFSA funds can be utilized for any purpose and not strictly education-related expenses. It can function as a flexible source of extra money during their education period.
In case your grandchildren don’t need the TFSA funds for their education, you’ll be helping them inculcate a valuable habit of saving and investing. Isn’t that a legacy in itself?
Endnote
Making your grandchildren financially literate sets the cornerstone for securing your grandchild’s future expenditure. Teach them about insurance, mutual funds, saving accounts, and other investment modes.
Insurance is one of the best investment methods to save up for your grandchild without incurring tax on the dividends. Multiple investment channels are also a great strategy to financially secure your grandchild’s future.
You can open an RESP, life insurance scheme, and/or TFSA account to support your grandchild.
While RESP can take care of education, TFSA and life insurance funds offer financial security for other aspects of life. Before starting any investment plan, it is recommended that you consult a financial expert to guide you in your investment journey.