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Q. I would like to open a savings account for my grandchildren, why do we need a social insurance number for them and can i keep them all under my name, and wouod like to get the best interest for them so when they graduate they will have money to help them with their education or whatever they would like to do after they graduate
A. The savings account you are referring to that requires a social insurance number (SIN) is the Registered Education Saving Plan (RESP). An RESP follows guidelines that are determined by the federal government. For instance, an RESP eligible person must be a resident of Canada and have a SIN in order to be named as a beneficiary on an RESP. The Canada Revenue Agency (CRA) uses the SIN to verify grant eligibility.
The advantages to contributing to an RESP in the child’s name are many. The interest earned is tax-sheltered until taken out by the child and the tax implications to the child would likely be minimal since the beneficiary would likely have a lower income while attending post-secondary school. In addition there are government grants available. For example, if you contribute $2500 annually, the plan will receive $500 in government matching funding. Plus, you may also be eligible for additional grants (above the 20% Canada Education Savings Grant (CESG) indicated in the previous example). In order not to exceed the annual contribution limits and avoid tax consequences, both the parents and grandparents need to be aware and co-ordinate all contributions to the plan.
The other option you raise is saving for your grandchildren, under your name. The monies could be deposited to a Synergy iSave, or Wealth Accumulator with as little as $25 per month, within a sub account under your existing account. The sub account could be set up with the child’s name for easy reference. Structuring the account this way provides the best possible rate of return and attracts no monthly fees, and the monies grow until such time as you choose to turn the money over to the youth. The disadvantage here is, if the funds are intended to be used for education purposes, you would miss out on the tax-free compounding interest and government matching funds available through an RESP.
We recommend you talk with one of our investment specialists to explore your options and determine a plan that works best for you and the grandchildren you so generously wish to assist.
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