Tax Free Saving For Grandchildren: 10 Ways

There is no doubt that grandparents spoil their grandchildren out of love. Whether sliding some extra money in their pockets or giving them their favorite snack, grandparents always try to contribute to their happiness.

But they are also the ones who worry about their future the most. Plus, understand that nothing is better than a long-term investment when it comes to the future. 

As it is tough for the younger generation to save these days, investments like TFSAs are a great way to securely build a legacy for your children. Tax-free savings let you invest your money without capital gains, Canadian dividends, etc. Also, help set aside tax-free money throughout your lifetime. 

So, if you are a worried grandparent, start saving now & purchase Insurance for Children to help them get an easier start in life. 

How your grandchildren can have tax-free savings

If you wish to give beyond and above pocket money, birthday, or Christmas gifts, we suggest investing in life insurance plans such as – TFSAs, etc. How? 

Below we have shared ten sure-shot ways to enjoy most of it. 

1. A registered education savings plan 

RESPs are specifically designed for parents and grandparents who are not financially strong but wish to support their kids throughout education. This plan offers two major services – 

 ●        Government matching – Canada education savings grants ask for your 20% contribution up to $400-500* each year. 

●        Tax-deferred investment growth – It means your grandchild will not be liable to tax unless or until he starts withdrawing money for post-secondary education. 

2. Contribute to JSA

Open a Junior Savings Account if you search for an easy way to kick start savings. As ISA is a tax-free and long-term savings account, grandparents must have parental custody. But they are free to contribute with an annual limit of £4,000 to £5,000*. 

Your JSA also includes stocks, shares as Junior ISA, and a cash Junior ISA only accessed after 18 years of age. 

3. Pass on pension 

Passing on your pension is another way to make a stable source of income for your grandkid. Before the unfortunate time comes, you can determine who stands to inherit your pension.

You can add as many beneficiaries as you wish. But naming your grandchildren will ensure they are well taken care of. 

As pensions are not counted as outside of the estate, it means he can access your retirement savings without paying any inheritance tax. 

4.  Certificate deposit 

Investing in CDs (certificate of deposit) won’t technically decrease the amount. Rather it allows you to have higher returns on your savings account. 

●        The period of CDs can be as short as a few months and as long as many years. But usually, the long term is beneficial as it has higher interest rates only with the promise that you won’t withdraw the money before a certain period. 

●        Also, remember that CD rates are fixed in most cases. But if you notice a change or rise in rates, be careful while locking yourself in a long-term Certificate of deposit. 

5. Education savings through TFSA

Your grandchildren can open their TFSA at 18 or above as per the provision. But if you wish to contribute to top-up, this can be an excellent investment option. Moreover, you can utilize your Tax-free savings account for various purposes beyond tax-free savings. 

This makes it a flexible and popular source of investment for your grandkid’s education. Even if he does not require the money in his high school, you will teach him a lifelong habit of saving money and further investing it. 

6. Insurance for grandkids 

Mostly, insurance is overlooked while helping grandkids financially. But, it is the most beneficial way to do your job as a grandparent. Be it a physical emergency or financial – this insurance will make sure your loved ones are well taken care of. 

Moreover, if your child decides to be independent after 10-20 years, it will be a financial backup for him. Plus, if your child is unfortunately disabled, you can opt for a disability or critical illness insurance policy. It will help him throughout his treatment and support him financially.

7. Saving bonds  

US Treasury Department – saving bonds is another way to have Tax free Savings. Utilizing these EE or I bonds for qualified education expenses will offer you tax-free earnings. In addition to this, you can liquidate these bonds and deposit the proceeds into a 529 plan or Coverdell ESA to avoid taxation. 

8. Roth IRA 

Investment done in your Roth IRA is another potential source of saving money tax-free. Irrespective of age, you can easily withdraw your contributions from Roth IRA without any penalties or taxes.

●        If you are younger than 59/half, you will be liable to pay the penalty along with income tax. However, that can be waived if you utilize the money in qualified education expenses. 

●        Once you have crossed 59 and had an active account for more than five years, your account will be eligible for penalty and tax-free withdrawals. 

9.  RDSP 

RDSP is similar to RESPs, which stands for Registered Disability Savings Plans. It is a tax-free savings option for parents and grandparents under Disability Tax Credit (DTC). 

These investments are not for education but a long-term saving plan, especially for retirement. RDSP contributions are not liable for any tax or penalty.

However, they qualify for a government grant when a beneficiary turns 49. Likewise, withdrawal is similar, and the beneficiary is taxable and initial contributions can be tax-free. 

10. A good financial behavior

Apart from the above-mentioned tax-free savings, it is essential to model good financial behaviour in your children. They should learn that financial investment is not a source of anxiety but a necessary tool for adulthood.

So, teaching money-saving habits in them will lead them towards a secure and safer future ahead. 

Investing and saving are the two essential things you can do for your grandchildren. These investments do not need to be complex or large. Hopefully, this article provided enough information and guidance to assist you make a tax-free investment.  Although the decision is yours, we recommend you consider the guide given above for detailed guidance. 

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