It’s hard to understand now, but your kid will eventually become independent. They will start making their own decisions and earn their pocket money. But as you know, it is tough for the younger generation to build and secure themselves financially. So, if you wish to support them, start saving Money for Your Kids and help them get an easy start to life.
Moreover, being parents, you will not always be around. So, teaching them the habit of long-term investment and saving is essential. Be it – Roth IRA, RDSP, RESP, etc., you can invest your hard money and set aside a major milestone for them. It will give them an easier start to life and support throughout their lifetime.
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How to save money for your children
If you wish to support your kid beyond pocket money, gifts, clothes, toys, etc., investing money in an insurance plan is a wise decision. Therefore, we have shared a few beneficial ways to invest money and enjoy the most out of it.
1. Roth IRA
It is another way to have tax-free savings for future purposes. Roth IRA allows you to withdraw your contributions from the Roth account without penalties. If you are under the age of 59, you will be required to pay the penalty in addition to your income tax. However, if you utilize your savings for qualified education expenses, that can be waived.
– Above 59 and owning an active account for more than five years will become eligible for tax-free and penalty-free withdrawals.
– A Roth IRA account allows you to save after-tax dollars for the retirement period. And if we look at the latest stats – In 2021, workers less than 50 can save up to $6,000. While those who are older than 50 are eligible to contribute $7,000.
So basically, money withdrawn by 59+ will not be liable to pay tax. On the contrary, if the beneficiary is less than 59, he will be asked to pay a 10% penalty tax.
Although, as per the provision, your kids can open their TFSAs at 18 or above. But you can always contribute or top-up their amount through investment. Moreover, TFSA is flexible to use beyond tax-free savings.
For example, you can hold various investment types in-between TFSA like – TFSAT F S A. You can invest in your amount & let it grow to receive tax-free rewards.
– Offers Tax-free Growth
You will not be asked to pay tax on any growth earned through your TFSA F S A, including dividends, capital gains, or interest.
– Mix savings
You can easily mix your savings with TFSAT F S A with investments like – stocks, bonds, mutual funds, GICS (Guaranteed investment certificates), cash, and more. But before doing so, customize your portfolio according to risk tolerance and investing horizon.
– Flexible account
TFSAT F S A is similar to RRSP R S P, which offers tax benefits and allows you to withdraw the funds anytime. Moreover, you can re-invest the withdrawn amount, including your earned interest.
3. Child trust funds
You can easily pass your money and assets to the next generation by setting up a trust. Trust is a legal entity. So, you can easily set up your assets in large amounts. Moreover, a trustee will be assigned to your funds while you will be asked to mention the beneficiary’s name.
If we talk about disbursements, it can occur at the appointed time as per the instructions given in the trust deal. It enables a person to establish a trust and monitor how money is spent in order to avoid wasting it.
- Life Insurance for kids
Apart from these saving methods, you can choose Life insurance. Although it is the most overlooked source of saving, life insurance helps the beneficiary if you die unexpectedly. There are popularly three insurance plans that can benefit you more than usual.
– Permanent life Insurance
These insurance plans usually never expire and easily blend savings with mortal advantages.
– Traditional life Insurance
Traditional insurance offers whole life coverage and provides a guaranteed sum for survivors, also known as life insurance.
– No exam life Insurance
It is specially designed for medical assistance, where you can have your medical exams done at their cost.
A registered education savings plan is specifically created for parents who wish to support their kids’ education but are not financially well. It does not just offer financial help but also –
– Provide Tax-Free Savings
Your savings amount will be tax-free. If you ever try to withdraw the amount, your child will be liable to pay little to no tax as a student.
– It can be used for overall education.
Not only tuition fees, but you can utilize these savings on books, living expenses, and other course material without paying any penalty or heavy tax.
– Provide Government Grants
As per the provision, the federal government can add up to $400-500/year, with Canada Education Savings Grant (CESG) up to $7000-7500.
– Canada education savings grant only asks for a 20% contribution and provides tax-deferred investment growth in return.
– This means your child is not liable to pay the penalty or tax unless or until he withdraws money for post-secondary education.
6. Canada child benefit
CCB is a tax-free source of monthly income for all family members under 18. This is directly deposited into the parents’ bank, which is flexible. It can also be further invested in saving programs without any restrictions.
Moreover, as the control is in the hands of parents, they can invest Canadian child benefit in their children’s best options. In comparison to that, RESP can only be invested in government programs like – education-related expenses.
However, if you are still confused between RESP & CCB, visit the link given below for detailed guidance. And choose what suits you best for your children.
Hopefully, this article was informative and helpful enough to guide you regarding solid ways to save Money for Your Kids or invest in the best possible way. First, however, you can look for your favourite saving programs and invest there.
But if you wish to avoid the risk, we recommend you consider the guide given above to save Money for Your Kids. We have listed six best tried and tested sources to invest your hard-earned money and get great financial returns in return.