Post secondary graduates earn, about $1 million more than those without a degree…
If you’re a grandparent, you already know the joys of having grandchildren in your life. And, like so many grandparents, you may be looking at ways to help your grandchildren get the most out of their lives.
Perhaps the most valuable thing you could give your grandkids is the gift of education.
Consider this: Over a lifetime, post secondary graduates earn, on average, about $1 million more than those without a degree according to the Census Bureau. So, putting money toward your grandchildren’s post secondary education is a good investment.
Furthermore, your grandchildren may well need the help, because getting an education is expensive and costs continue to rise. Consequently, you may want to contribute to an RESP. Rules around RESPs have steadily become more accommodating over the years. You have several options for how the money can be invested and there is a lifetime contribution limit of $50,000 per beneficiary. Growth within the plan is tax sheltered, and when a student draws funds from the plan to pay for his or her education, the income is included on their tax return. As most students generally have negligible income, the tax payable on the withdrawals can be as low as zero.
If you name one grandchild as a beneficiary of an RESP and that grandchild decides not to go to college or university, you can switch the account to another grandchild – in other words, you maintain control of the money for the life of the account.
Another common way to invest money for a grandchild’s education is through the use of an “in-trust” account. An “in-trust” account is an informal trust because there is no trust deed. However, it’s important to note that once gifted, this money no longer belongs to the donor.
If you put your money into either a formal trust or an in-trust account for a minor grandchild, all income will be taxed in your hands until the child reaches age 18. Any capital gains will be taxed to the child regardless of their age. This is why investments that generate capital gains are ideally suited to this type of arrangement. For this type of arrangement to work properly, care must be taken to ensure that the in-trust account is set up properly and complies with the applicable tax rules.
Whichever option is right for your family, there are a variety of opportunities for you to give something to the grandchildren who give so much to you.
I’ve been a Wealth Advisor for over 20 years. We offer a full suite of wealth management and planning services, specializing in business retirement strategies. I wrote the financial planning guide “It’s Only Money” in 2003 (with updates in 2006, 2011 & 2013), which led to writing a financial Q&A column called Dollars & Sense for the Victoria Times Colonist. We focus on customer service, which to us means consistent contact and prudent advice.