If the trust account is sponsored by a parent or grandparent, the income rules may apply so that the income is taxed back to the parent or grandparent. For clarity, income in this context is considered interest and dividends. Capital gains, however, are taxed for minors—although no tax will be paid, assuming their income is below the basic personal amount mentioned above.
Is RESP a good investment?
Your savings, even if they come from your own sources, can be added to your registered education savings plan (RESP) account. Especially if the parent is not maximizing their contributions, doing so will be more beneficial than saving in an informal trust account. RESP contributions of up to $2,500 per year receive a 20% Canada Education Savings Grant (CESG) from the government. Donors can even get an additional $2,500 in missed donations from previous years for an additional 20% grant. Low-income families may qualify for the Canada Learning Bond (CLB), and some provinces offer additional benefits to eligible beneficiaries.
At what age can you start investing in a TFSA?
A minor cannot contribute to a tax-free savings account (TFSA). Taxpayers don’t start accumulating money in a TFSA until the year they turn 18. That said, most Canadians, and that includes parents or grandparents, have TFSA room, given the combined TFSA limit of up to $95,000, as of January 2024, and $102,000 as of January 2025.
A parent or grandparent can contribute your savings to their own TFSA and make it yours. They may consider opening a separate TFSA to separate funds from their own or purchase separate investments within their primary TFSA. By opening a separate TFSA, they can even name a minor as a beneficiary in the event of their death. There may be a risk in this situation if that parent or grandparent divorces or becomes disabled.
Is it too early to invest in an RRSP?
There is no minimum age requirement to open a registered retirement savings (RRSP) account, but the contributor may need RRSP room. I say “may” because a taxpayer can contribute up to $2,000 to an RRSP without penalty. Therefore, you can contribute up to this limit to the child’s RRSP. As you start working, as long as you file your tax return, you’ll start accumulating RRSP room (18% of your earned income each year).
It’s important to know that RRSPs are less flexible than TFSAs, trust accounts or bank accounts for a young person, so they may not be the best way to save. Also, RESPs have a specific purpose—to pay for post-secondary education.
Investing in youth: What makes sense?
If you are going to be part of the investment decision making process in a brokerage account, I think it would be OK to bend the rules a bit. When building a stock portfolio, you usually want to have at least 20 stocks to get the right diversification. If you invest $1,000, you may not be able to buy 20 stocks. You could buy a mutual fund or ETF for diversification instead.
Would it be a bad idea to invest the entire account in one or a few stocks? Maybe not. Especially if the stocks are companies that you can relate to and be interested in and learn from while investing, even if you end up not being isolated. That is a personal decision. But diversification is probably the most important part of investing.
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