TFSA for children. Yes or no?

[Agent47]

I opened EE accounts for my children recently.

 

I wanted to buy ETF's in the Tax Free account, but Now I am thinking, would it not be better to leave their tax free allocations to them for when they are adults, to take advantage of then, instead of me using a chunk now.

 

THis is thinking way ahead, and I am making certain assumptions, plus hopefully the tax free allocations will increase.

 

But it could help them save on taxes, plus it could motivate them to save and use the tax free benefit. Unless I use all or part of their allocations.

 

Shall I rather buy same ETF's in normal accounts?

 

Looking forward to your opinions.

[Spreadsheet Ranger]

My thinking would be to open it in their normal accounts incase when they turn 18 and decide they would rather want to use that money to buy a house or college or something essentially they decide to withdraw the money.

 

So instead of running the risk of screwing up their TFSA years from now rather open it in a normal account and when they are of age tell them to use the TFSA from the first day they earn a salary.

 

There is definitely argument for both, but personally I would leave the TFSA to the young adult and rather build up a fund for him/her in her/his normal account.

[Bandit]

It's difficult because you don't know if they'll be horrible with money or not.

 

Personally, I'd invest five or so years for them and let that money grow.

 

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[Stealthy]

I faced a similar predicament last year. Here's how we handling it - http://www.stealthywealth.co.za/2016/09/investing-for-stealthy-junior.html

[Agent47]

Thanks for the replies.

 

@Stealthy, unfortunately I cannot open your site. Not sure why though. Just get a "site cant be reached" meassage.

Will try on my mobile on mobile network later.

[Outlook]

Seems to be something to do with the https vs non https try this link - http://www.stealthywealth.co.za/2016/09/investing-for-stealthy-junior.html (I think PW converts all links to https SSL)

 

@Agent47 I don't think you should open a TFSA for the kid, too many variables for what he might need that money for or quite frankly when he turns 18 he might end up being a teenager and spend it all on hookers and blow and then he ruined his TFSA for it. (Tongue in cheek example of course)

[Stealthy]

Yeah the https was the problem - fixed the original link.

[Agent47]

Thanks guys. THanks Stealthy.

So no TFSA then. Will leave it to them to hopefully one day use their allocation themselves.

 

I will continue with the normal EE account... as per Stealthy on his website.

I want them to see their savings grow. So I will involve them in this.

 

Thanks

[synapseza]

My choice would have been a taxable account in his name - just to remove/reduce the capital gains burden when cashing it out. With the added responsibility to teach him good financial discipline and not have him squander the investment. You have 18 years for that

 

I would also say that it is very important to ensure that this "secondary investment" does not dramatically influence your ability to save for your own retirement. There are always the options of a study loan and bursaries to make up for any shortfall.

[MrDividend]

I like the idea of opening one, funding to the max for 5 or so years, then letting it just tick over. 12 to 15 years of tax free compounding should mean it's worth a sizeable amount but at the same time have used very little of the kids allowance.