You cannot tell what profession your grandchild will pursue in the future. But you can certainly tell that whatever profession they feel inclined towards, they can’t pursue it without proper education. 
And studies suggest that college costs increase twice the inflation rate each year, making post-secondary education a costly affair.
Moreover, being a grandparent, you will always strive to get your grandkid the most valuable gift. While your grandchildren may be craving a new bicycle or a fancy pair of sneakers, there cannot be a better gift than creating a savings plan for their future.
Read more if you want to create a savings plan for your kid but don’t know what options are available for grandparents and which of them can be the most beneficial for you and your grandchild.
How to save up for your grandchild’s future?
When it comes to saving for your grandchildren, the options available may not be many, but the ones available are more than capable of allowing you to save enough for your grandchild’s future.
-
Registered Education Savings Plan (RESP)
An RESP is an excellent savings vehicle that allows parents and relatives, friends, and grandparents to contribute to the child’s higher education. Therefore, a grandparent can start their RESP for the grandchild and contribute to helping them financially.
However, it is essential for the parents, grandparents, and any other contributors to discuss the contributions since contributing more than $2500 annually in an RESP will make the beneficiary ineligible for grants like Canada Education Savings Grant, Canada Learning Bond, and other provincial grants.
You have to make contributions under an RESP until the beneficiary reaches a certain age. The beneficiary will start getting Educational Assistance Payments (EAPs) to cope with the education expenses. However, the beneficiary will have to include the EPAs in their income for the respective year.
Grandparents can also ensure to have a successor subscriber who will make the contributions in case of the primary subscriber passes away.
-
Tax-Free Savings Account (TFSA)
Tax-free savings account or can help your grandchild save for future needs like a car, house, business startup, etc., even if they are above 18 years. You can make limited contributions to tax-free savings account just like you do in an RESP.
It is prudent to mention that the penalties will be applicable if your contributions exceed the limits, which as of 2022 is $6000 per year.
It will be beneficial if you do not make direct contributions. Instead, gift the money to your grandchild to contribute as it is tax-efficient and helps your grandchild fund their education or other financial needs.
You should also know that you cannot have a say in what your grandchild does with the TFSA money.
-
Registered Retirement Savings Plan (RRSP)
Like a TFSA, a grandparent has no control over an You can open an RRSP in your grandkid’s name based on the assumption that they will only use it after your retirement. However, there’s no way a grandparent can enforce this.
You can set up an RRSP for your grandchild at any age, provided that they have some income and a social insurance number.
When the child has minimal taxable income, the tax savings are limited in an RRSP. You can also make an RRSP contribution equal to your grandchild’s contribution limit as a gift and help them have a financially secure future.
Your grandchild can also obtain a larger tax refund by not claiming an RRSP deduction and carrying forward the contribution until their income increases. The contributors, however, need to ensure that they do not exceed the contribution limit to avoid penalties.
-
Help your adult child contribute
Another great way is to help your adult child and give them the money to contribute to tax-efficient schemes that are not available to the grandparents. It will ensure that you do your bits to save money towards making your grandchild’s future financially secure while helping your child prepare a better future for the upcoming generation.
-
Buy them a whole life insurance plan
A whole life insurance plan like the Child Plan can make an excellent choice for saving up your grandchildren’s future without worrying about over-contribution. They do not have an upper ceiling for contribution or apply penalties, giving you the freedom to save as much as you want for your grandchild’s future.
Besides, your grandchild can use this money to finance any future dream, including higher education, business startup, making a downpayment for a first home, etc.
-
What are the benefits of a Child Plan?
The Child Plan is a tax-free whole life insurance plan for children. As a result, it’s an excellent way to save for your grandchild’s future, as it will provide them with a tax-free yearly dividend for the rest of their lives.
Furthermore, even when funds are moved to grandchildren’s names, the Child Plan permits grandparents to say how their grandkids use the money. The following are some of the essential characteristics of a Child Plan:
- Grandparents can get their grandchildren a Child Plan anytime 14 days after birth.
- The Child Plan can be funded using personal or business contributions.
- The plan pays monthly tax-free dividends for the remainder of your grandchild’s life.
- Grandparents over the age of 64 can contribute to the Child’s Plan using RRSP or RRIF.
- A Child Plan is a tax-free option to leave money to your grandchildren.
- You manage the cash values as the owner of the Child Plan until you transfer the ownership to your grandchild tax-free and fee-free.
- The value of permanent, fully paid-up life insurance rises throughout your grandchild’s life from the day the Child Plan is started.
- You may give your grandchild a tax-free Child Plan to retain trust for them at any time.
- Pre-funding a Child Plan entirety will save you up to 25% on the total cost.
Grandparents can play a significant role in helping the grandchild lead a trouble-free future life by saving for them. After all, it is not the sole responsibility of the parents to look after and save for the future of a child.
Moreover, there are various plans and schemes you can invest in to make sure your grandchild has the funds available for their future needs like education, house, business, etc.
While all the solutions mentioned earlier can help you save money for your grandchild’s future, the Child Plan outshines them all with its inherent features and benefits and thus can be a great option to secure your grandkid’s future.
Related Posts:
