Four smart strategies for your grandchildren
Grandparents have special ties with their grandchildren
They are eager to listen to them, and sometimes spoil them by giving them ice cream before dinner.
Within your means, you can help your children and grandchildren prepare for a better future by helping to finance their education savings account.
Coordinate your RESP contributions with those of your adult children.
Registered Education Savings Plans (RESPs) are specifically designed to help parents and grandparents save for a child's education. They offer various possibilities:
- Matching government contributions - under the Canada Education Savings Grant (CESG) program, the Government makes a matching contribution equal to 20% of your contribution, to a maximum of $500 each year.
- Tax-sheltered savings growth - your savings are tax-sheltered until your grandchild starts withdrawing funds to finance their post-secondary education.
A child may be the beneficiary of more than one RESP. However, because there is a lifetime contribution limit of $50,000 per child, tracking for various plans can be complicated. Find out if your children have opened an RESP for your grandchildren, and then coordinate your contributions with theirs.
Give your adult children the money to contribute.
Instead of contributing directly to the RESP, you could give money to your children to make higher contributions to their child's RESP. This can protect you from tax if your grandchild decides not to go to post-secondary education.
Add a TFSA as a supplement to your RESP.
Let's say you plan to allocate a specific amount to the education savings of one of your grandchildren, say, $30,000 and you have the necessary funds now!
To maximize the CESG (assuming no one else makes contributions on behalf of your grandchild), it is possible to:
- contribute $30,000 to your Tax-Free Savings Account (TFSA);
- roll $2,500 from your TFSA to your RESP each year.
Advantage: You will enjoy a tax-sheltered growth in savings while the money waits to be paid into the RESP.
Add-on to your grandchild's TFSA.
When your grandchildren turn 18, they will be able to open their own TFSA. If their education savings funds require a top-up, this is a great vehicle to do so.
In addition to providing tax-sheltered savings growth, funds withdrawn from the TFSA can be used for any purpose — unlike resp funds that must be used to pay for education expenses. These funds are therefore a flexible source of funds while your grandchildren are in school.
What happens if your grandchildren don't use their TFSA money to fund their education? You will help them get into the habit of saving and investing all their lives and that in itself is a legacy.
You will appreciate having trusted your professional.
As an Independent Financial Security Advisor, I am able to enlighten you on the best approach to take. The Financial Services Industry is constantly evolving and new products are becoming available year after year.