As a grandparent, you love pampering your grandchildren, sharing a close bond with the kids. Between fairy tales, ice creams, and candies, it’s fascinating to strengthen your affinity. However, some responsibilities are more serious than toys or candies. How about planning sound and secure financial support for your grandchildren?
While cash gifts are good, it makes sense to help them down the way over the years. This explains why many grandparents prefer investing wisely to ensure valuable financial quotients as they keep growing. You can read more about child plans for your grandchildren here.
Rising cost of education: Managing educational expenses in future
Statistics reveal that the average cost of international undergraduate education in Canada has increased by 7.1% over the last academic year. Apart from international students, Canadian students also need to shell out higher academic fees. Higher education centers in British Columbia have hiked fees by as much as 9%.
On average, the national fee for graduate programs in Canada has also increased in several provinces. The pandemic has already ushered a digital transformation, following which the academic institutions are hiking their fees to make way for the new infrastructure.
Therefore, it would be a logical decision to invest in your grandchild’s future amidst a world of uncertainties.
Securing your grandchild’s future through investments
If you have been wondering about the most effective ways to channelize your funds, have a look at the following investment options. This ensures that your grandchildren would have adequate financial backup to manage their expenses as they keep maturing over the decades.
1. Whole life insurance plans
How about gifting your grandchildren whole life insurance plans that would endow them with adequate financial security? In Canada, grandparents can benefit from tax-free insurance plans for their grandchildren. You can purchase one of these policies even when the child is just 14 days old!
Ultimately, the cash value of these plans would grow throughout the lifetime of your grandchild, free from tax right from the time you open the account. With the special child plans, the actual benefit comes from lifetime tax-free dividends.
Moreover, if you are aged above 64, you can benefit from RRIFs or RRSPs for funding child plans. This is one of the best ways to transfer your wealth tax-free to your subsequent generations. Talk to an insurance expert to know more about these policies.
2. Tax-Free Savings Account (TFSA)
While exploring your investment options, you may be on the lookout for gift funds in savings accounts that can help you save tax. Tax-Free Savings Accounts (TFSA) happen to be a viable option for you to achieve this financial goal. However, the accumulation of TFSA contributions cannot start until your grandchild turns 18. Then, the contributing grandparent would have no tax implication whatsoever.
For young individuals, TFSA contributions are pretty flexible. The limits of TFSA contributions have no specific clause associated with them. This is different from the contribution rooms in RRSPs, which are linked to the income of the persons. Besides, one can withdraw TFSAs any time free from tax for paying down payments on a home purchase, education, and other purposes.
One of the prime features of TFSA is that it belongs to the person holding the account. Therefore, if you are contributing to such an account of the grandchild, you are effectively giving them financial support.
3. Registered Retirement Savings Plan (RRSP)
In case you decide to gift cash to the Registered Retirement Savings Plan (RRSP) of your grandchild, the amount would be compounding significantly. Besides, this amount would be free from tax. Moreover, as per the Home Buyer’s Plan, first-time property buyers can draw an amount from the RRSP. Besides, as per the Lifelong Learning Plan, one can draw money from the RRSP for educational purposes too.
4. Registered Education Savings Plan (RESP)
Although you need not pay any income tax when you contribute to RESP, your grandchild will be liable to pay tax when they withdraw the amount. However, once you plan out the investment with your grandchildren’s parents and start investing, you can help them capitalize on the amount. Moreover, you would be enjoying tax exemption on the contribution.
Things to consider before you gift your grandchildren
Here are a few things you need to consider before planning a gift for your grandchildren:
1. The timing
In the first place, consider the timing when you would invest for your grandchildren. The transfer might take place now or later on in the future. You might have to pay a potential tax if you are not careful about where you invest.
2. Grandchildren’s age
Your gifting strategy would largely depend on the stage of life and age of your grandchildren. Besides, you might gift the amount through a trust or directly through one of the schemes.
Remember, if you invest when the child is a newborn, you need to make necessary arrangements to transfer the amount when your grandchild becomes an adult. Therefore, considering the present age of the grandchild, you need to plan the strategy.
3. Number of grandchildren
When you think of transferring funds to your subsequent generations, you need to plan for your future grandchildren, too, rather than simply the existing ones. Besides, you need to decide whether any of your step-grandchildren are supposed to benefit from the amount. So it makes sense to establish a well-defined will if you are unsure about the number of grandchildren you would have.
Endnote
Evidently, investing for the future of your grandchild involves several responsibilities. However, a calculated approach from your end can benefit both generations. While you can save taxes worth hundreds of dollars, you would establish a good financial flow for your grandchildren. This justifies why you should consult an insurance expert regarding tax-free policies.
With education, living, rental, and other expenses rising, responsible grandparents are keen to invest in the best insurance policies for their future generations. Indirectly, you would also benefit from such contributions in the light of saved taxes on your income. So check out the best insurance policies, as they come with zero tax implications!