How young is too young for an RRSP?

Even teenagers can sock away their summer job wages in an RRSP. Here’s why it’s a good idea.

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by

From the April 2013 issue of the magazine.

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Lorettos_322Q: Can our kids start an RRSP even though they are still in school with only part-time jobs?

—Ernie Haller, Loretto, Ont.

A: Yes, your kids can start an RRSP. And more important, they should. Their part-time jobs will give them the earned income they need to build contribution room. And once they start kicking in money to the plan, they will start reaping the benefits of compound interest: $100 socked away at age 15 will grow much larger than $100 deposited at age 30. But the biggest benefit of starting an RRSP so young is your kids will develop a useful habit: saving for retirement. Sure, the amount they contribute will fluctuate over the years because of school expenses, family or a mortgage, but your kids will get used to putting some money aside every year. While your children aren’t likely to get a tax deduction from their RRSP contributions, they can contribute today and claim the deduction in the future when they are making more money. Plus, if they need to, they’ll be able to borrow from their RRSPs under the Home Buyers’ Plan or the Lifelong Learning Plan.

Bruce Sellery is a frequent guest on financial television shows and author of Moolala. Do you have your own personal question? Write to Bruce at ask@moneysense.ca.

8 comments on “How young is too young for an RRSP?

  1. Wrong. They should save, but not in a RRSP. TFSA is the way to go until your income is high enough to give you nice tax returns from an RRSP. An unregistered account would even be better than an RRSP in this case. Unless your current income is higher than your projected retirement incomre, an RRSP is a net money sink…

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    • The only problem with your option is TFSA cannot be established by a 15 year old. You have to be at least 18 years of age to establish a TFSA.

      Andre Leblanc, CFP

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      • So they invest their pittance outside an RRSP for three years, (and the growth will be tax free) and then have some funds available for their first TFSA contribution at 18.

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  2. At 29, one of the biggest financial missteps I made was in regards to my RRSP. While in high school and university, many people take summer/odd jobs but then do not properly file their income properly due to it being rather small and/or informal work such as mowing lawns etc… well, that will impact you when it comes to your first yr in the 'real world'. Since your RRSP contribution amount in based on previous year(s) income, if you did not claim all your income each year prior you will lose out in this first 'big' yr to save against taxes. Majority of younger people will always be under the personal allowance threshold, so do not need to worry about ever paying taxes. Therefore, this should be a no-brainer knowing the benefits down the road. I did not realize how RRSP allowance was calculated when I was younger and it hurt me personally. So, if you are young/student and work, file properly from the beginning of your incoming producing life as you will only benefit later in life from this approach.

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  3. Partially disagree. If the student or income earner is 18, a TFSA would be way better. During their school years, their income is most likely going to be low. RRSPs would not offer much of a tax deduction at this stage and low income level. TFSA earnings grow tax free much like an RRSP. However, the income at retirement is tax free! Way better than an RRSP. If the student is under age, then the RRSP make sense since you must be 18 to establish a TFSA.

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  4. i wish i knew this when i was younger i could've had been better off when i graduated

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  5. I wish they had TFSA's when I was a student, but I socked all my money away in RRSPs and maxed out every year. Too bad my RRSPs were worth more 10 years ago as the stock market has eroded all of my gains over the past 4 years. I should have invested in term deposits or GICs. My dad did and he made a killing in interest on his RRSPs.

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    • What I am trying to understand out of this article is how young can you actually start this process? I have a young son, and I am also self employed, My company is a corporation that pays me once a year and supplies a T4 as well. If I started to pay my son and issuing a T4, how young can this process start? For Example, is there a minimum age? Can I do taxes for a 3 year old and build RRSP space until he is old enough to contribute? He Already has his own bank account, I could direct deposit his monthly pay, for example, into that until he’s old enough?

      Or, Pay him a salary, and hold back part of it in a GIC of my own until he comes of age to move to his own?

      Had I know this when I was younger, I would have started much earlier. I know my own parents used to transfer part of their income to my brother’s income taxes as well.

      Reply

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