What’s the Minimum Age to Open a TFSA?
Parents today are facing many challenges. Between record-high cost of living, finding an affordable home to raise a family and deciding the best way to invest for their children’s future and education can feel impossible.
However, achieving those long-term financial dreams for both them and yourselves are still possible with the right information in order to choose the best strategy.
Many parents look to the Tax-Free Savings Account (TFSA) as a solution, but there are critical rules and age limits you must know first.
The TFSA Age Requirement and Eligibility Rules
The first rule is that the TFSA is for your retirement savings. By Canadian law, you cannot open a TFSA for a minor (someone under age 18). An individual only becomes eligible to open an account once they reach the age of majority in their specific province.
Provincial Age of Majority vs. Federal Rules
While the TFSA is a federal program that allows anyone to open an account at 18, your province’s legal age of majority dictates when you can actually sign a contract, like an investment account, a bank account, a TFSA account:
- 18 Years Old: Alberta, Ontario, Manitoba, Quebec, PEI, and Saskatchewan.
- 19 Years Old: British Columbia, New Brunswick, Nova Scotia, Newfoundland & Labrador, and all Territories.
Regardless of where you live, contribution room only begins to accumulate the year the child turns 18.
The “Catch-Up” Clause Advantage
If you were 18 or older in 2009 and never contributed to your TFSA you have a contribution room of $109,000.
That means you can contribute up to $109,000 in one shot in 2026.
However, if your chid turns 18 this year they can’t contribute $109,000. They can only contribute this year’s maximum which is $7,000, but if they don’t have the funds that year to contribute immediately, they don’t lose that contribution room. Any unused contribution (deposit) room carries forward indefinitely just like yours, allowing for larger “catch-up” deposits in later years. However, waiting means losing out on years of potential tax-free compounding.
Can I Transfer My Existing TFSA to My Child?
It’s a common misconception that when your child turns 18 you can simply open a TFSA for your child now that they’re adults and transfer any funds to their TFSA.
In reality, a TFSA is a non-transferable account legally tied to the individual contributor (depositor) your child and tracked by the Federal Government.
Even when your child turns 18, you cannot perform a direct transfer of your own TFSA’s assets or lump-sum balance into their name and there a rules to follow or a major tax penalty will be handed to your child.
- Your child is the owner of the TFSA, not you
- If your son deposits more than the annual limit set by CRA, they will pay 1% on the initial contribution for every dollar over that limit until it’s withdrawn.
While you are permitted to give your adult child money to contribute to their own newly opened TFSA, you have no control over what they do with those funds the moment they are deposited. Because the account belongs entirely to the child, you have no legal say in how they use the money.
When you were 18. What would you have done if your parents gave you all that money?
Other Investment Options For Your Child’s Future
But what if your child is two today? you cannot open a TFSA for them, and waiting until they reach adulthood means missing out on 16 years of tax-free growth, which can mean a huge difference in their future.
There are other options available to parents to invest for their children’s futures, as long as they know the rules.
Registered Education Savings Plan (RESP)
A government education savings plan that comes with a benefit of matching government continuing education savings grants (CESG). However it also comes with rules set by CRA that requires your child at 18 to select a Government approved post secondary institution, only use the funds from education purposes and if they choose a different path, you will be required to return all the grants.
Custodial account
Also known as an In Trust Account (ITF) in Canada is a child’s bank or investment account opened by a parent or grandparent and held in trust for the child. Many parents open an investment or bank account to save and invest for their children’s futures. But be aware that any taxes are due to be paid by you until they are 18. At 18 that account and all the money you saved belongs to them and you have no control over the funds once they turn 18.
Formal trust
The affluent or wealthy use formal trusts as a way to invest for their children. Formal trusts requires lawyers and accountants and annual tax filings on behalf of the trust. While a great way to set funds aside for their future. The biggest issue is to set it up, transfer assets to the trust, manage the trust until the child is of age and the taxes that need to be paid each year.
Life Insurance Trust
A life insurance trust is a cash value whole life insurance plan where parents and grandparents can each set up a plan to invest for the child’s future instead of waiting for the child to turn 18
Both parents and grandparents can open a Child Plan™ whole life plan which acts as a child’s version of a TFSA. The child will earn an annual tax-free dividends deposited into the plan each year by the life insurance company for life that will grow at a compounding rate tax free for life. However unlike a TFSA, where you can’t transfer the entire amount your invested for their future. With a cash value life insurance trust, parents and grandparents can transfer the entire plan with all its cash value completely tax free to the child and not at 18 at anytime the parents or grandparents believe the child is ready to manage this amount of funds responsibly. And unlike the custodial account, even after transferring it to the child, parents and grandparents can continue to have control how the funds are used once they transfer the plan to the child.
By starting now, you provide your child with a significant financial head start that is guaranteed to grow without any risks associated with the stock market since the cash value is guaranteed.
The requirement to wait until the child is 18 and lose all those years of growth along with the lack of a way to “transfer” the funds tax free to the child and the loss of parental oversight over how the child uses the funds after they transfer it are key reasons why many families choose a Child Plan™.
Final Thoughts
It’s important to know what your options are when investing for your child’s future and learning the rules so that you can make the best informed decision
You should always seek financial advice when it comes to investing in your child’s financial future.
Yet, the Child Plan is different. Child Plan allows parents and grandparents to stress less and focus more on building a stable foundation ahead for their family.