Q: Can an aunt, uncle or grandparent open an RRSP or RESP for a grandchild, niece or nephew as a gift?
—Elizabeth Adolph, Lillooet, B.C.
A: The acronyms “RRSP” and “RESP” may differ by only one letter, but the plans themselves are very different. The RRSP is for retirement savings and you cannot open one for a child. That’s because RRSP contribution room is based on a person’s earned income. Once she has some, she’ll file a tax return and start building that RRSP room, but you can’t do it for her. However, you certainly can open up an RESP for a child’s education savings, whether they are related to you or not. Your gift will qualify for the Canada Education Savings Grant, which amounts to 20% of the first $2,500 you contribute, up to $500 each year. I’d recommend that you coordinate with the parents as there is a limit on total contributions of $50,000 and if you go over that amount you’ll face a penalty. The parents may also have other more immediate financial needs that would benefit the child, such as helping to pay for activities or tutoring.
Bruce Sellery is a frequent guest on financial television shows and author of Moolala. Do you have your own personal finance question? Write to us at firstname.lastname@example.org