41. What Accounts Can My Teenager Use to Start Investing?

Account	RESP
Setup	Parent owns the account; child is the beneficiary of the account
Government	Matches 20% of your contributions up to a maximum of $500/year plus additional amounts available for low-income households
Tax Treatment	All growth inside of the account is tax-deferred. When withdrawals are eventually made for school (Education Assistance payments), the growth and grants are taxed in the hands of the child who will likely be in a low tax bracket (or, at least, lower than the parent)
Maximum Contributions	$50,000 for each beneficiary. Maximum $2,500 will attract grants per year plus 1 catch up year each year.
Restrictions on Withdrawals	If child does not enroll in a qualified education program, contributions can be taken out tax free. Grants get returned to the government. Investment earnings are taxed at your marginal tax rate + 20%. Big bite. No special treatment for dividends or cap gains.
Legal ownership of funds	Always with the subscriber (owner). The child beneficiary has no legal claim on the assets when they reach the age of majority.
Verdict	Great if you believe funds are going to be used for post-secondary.

Account	In-Trust Accounts
Setup	Parent owns the account, in trust for the child. When the child reaches the age of majority (18 in Ontario), they can legally take control of the assets.
Government	No government grants
Tax Treatment	Interest and dividend income attributes back to the trustee (parents). Capital gains attribute to the child. Income on Income attribute to the child. (some exceptions, inheritance, Canada Child Tax Benefit payments).
Maximum Contributions	None – no maximum
Restrictions on Withdrawals	Funds MUST be used for the benefit of the child, they cannot be taken back or used for any other purpose than for the benefit of the child. Once the child turns 18, they are legally entitled to control over the account.
Verdict	Good choice if the purpose of the funds is unknown or likely to be for something other than school. A lot more flexibility here. Use caution and work with an advisor (possibly lawyer) to make sure you set up the paperwork properly. These are very easy to set up, but very often set up wrong. If the amounts that you are going to contribute are large (which is subjective), you may consider working with a lawyer and having a more formal trust agreement set up.

Account	RRSPs
Setup	Child can setup an RRSP with most financial institution if they have a SIN # and RRSP contribution room. A parent can sign off as trading authority on the account
Government	No Government Grants
Tax Treatment	Contributions are tax-deductible in the year that they are made but a minor with a relatively low taxable income may choose to forego the deduction and reserve it for later years
Maximum Contributions	18% of previous year’s earned income, capped at $27,830 (2021), carries forward indefinitely
Restrictions on Withdrawals	None, but withdrawals will be added to income in the year the withdrawal is made. Contribution room does not get restored.
Verdict	Good choice if the funds are for super long term – ie. retirement, buying a house, or for university. Withdrawals can be made for Home Buyers Plan and Lifelong Learning Plan. Not a great choice for anything but those 3 reasons.