If a trust account is funded by a parent or grandparent, the income attribution rules may apply such that income is taxable to the parent or grandparent. To be clear, income in this context is considered interest and dividends. Capital gains, however, are taxable to the minor—though likely no tax would be payable, assuming their income is below the basic personal amount. 

Is an RESP a good investment?

Your savings, even if it is from your own sources, could be added to your registered education savings plan (RESP) account. Especially if a parent is not otherwise maxing out 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. Contributors can even catch up with an additional $2,500 of missed contributions from previous years to get an additional 20 per cent grant. 

What age can you start investing in a TFSA?

A minor cannot contribute to a tax-free savings account (TFSA). Taxpayers do not start to accumulate room in a TFSA until the year they turn 18. That said, many Canadians, and that includes parents or grandparents, have the TFSA room, given the cumulative TFSA limit is up to $81,500 as of January 2022. 

A parent or grandparent could contribute your savings to their own TFSA and have it notionally belong to you. They could consider opening a separate TFSA to distinguish the funds from their own or buying different investments within their primary TFSA. By opening a separate TFSA, they could even name a minor as the beneficiary in the event of their death. 

Is it too early to invest in an RRSP?

There is no age minimum requirement for opening a registered retirement savings plan (RRSP) account, but a contributor may need RRSP room. I say “may” because a taxpayer can over-contribute by up to $2,000 to a RRSP without penalty. So, you could contribute up to this limit to a RRSP for a minor. As you begin to work, as long as you file a tax return, you will start to accumulate 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 saving option. Also, RESPs have a specific purpose—paying for post-secondary education.

Investing for teens: What makes sense?

If you are going to be part of the investment decision-making process for a brokerage account, I think it can be OK to bend the rules a bit. If you are building a stock portfolio, you probably want to have at least 20 stocks which would be 5% each of the account, for example. If you are investing $1,000, you may not be able to buy 20 stocks. Sure, you could buy a mutual fund or exchange traded fund for diversification, but that may not be as educational for a young saver. 

Would it be a bad idea to put the whole account into one or a few stocks? Maybe not. Especially if the stocks are companies you can relate to and be interested in and learn from while investing, even if you end up under-diversified. That is a personal decision.

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