Canadians of all ages, including children, regularly invest in Tax-Free Savings Accounts (TFSAs). TFSAs allow you to invest and save money without paying tax on any investment income or capital gains earned within the account. Therefore, they’re a tax-efficient way to grow your money long-term. However, they’re not the only way to save for your child’s future.
Benefits of a TFSA
One benefit of a TFSA for children is that it can teach them about saving and investing at an early age. When you open a TFSA on behalf of a child, you can help to instill good financial habits that will serve them well throughout their lives.
Another benefit of a TFSA for children is that it provides a tax-free way to save money for education and other expenses. With a TFSA, children can save and invest money for the long term and use it to pay for education, travel, or other expenses when they’re older.
TFSA Limitations
There are some limitations and disadvantages of opening a TFSA for your child. Some of them include:
- The child must be a Canadian resident and at least 18 years old.
- There are annual contribution limits for TFSAs, which currently stand at $6,000 per year.
- A child can contribute up to $6,000 in a given year, and any unused contribution room can be carried forward to future years.
- Contributions to a child’s TFSA will count towards the child’s contribution limit, not the parent’s or guardian’s.
- The child will be responsible for keeping track of their contributions and ensuring that they don’t exceed the annual limit.
In summary, TFSAs are a great investment option for children, as they can help to teach good financial habits and provide a tax-free source of funds for education and other expenses. By contributing to a child’s TFSA, parents and guardians can help to set them up for financial success in the future.
A Better Option for Your Child’s Future
Unfortunately, you can’t open a TFSA account for your minor child. But, you can still save money for their education and future! Opening a Child Plan Participating Whole Life plan for your child allows you to start saving money for their future as early as 14 days after their birth.
The Child Plan “Participating” Whole Life plan has been used by parents to save for their children’s futures since 1847. That’s right. 175 years. It’s a more flexible tax-free saving plan than a TFSA that can give your child endless opportunities.
A Participating Whole Life Plan provides your child with an annual tax-free dividend every year for life. This gives them the freedom and financial security to:
- Enroll in any education program around the world
- Have a down payment on their first home
- Fund their first start-up (if that’s their dream)
- Use their investment as they see fit
In addition to growing tax-free for 18 years, there are no market risks to their cash value. You decide when to give them the plan anytime after 18. If you want to further protect their future, you can even have a say on how they use the cash value.
Unlike an RESP which has an annual limit and a lifetime maximum contribution, or a TFSA with an annual contribution of $6,000, there is no maximum contribution to a Child Plan. You can contribute as much as you want. And after your child turns 20, their plan is fully paid for with no further deposits ever required. Plus, the cash value will continue to grow completely tax-free for life.
Give the ultimate gift, whether you’re a grandparent or aunt or uncle.