- Keep the $50,000 yourself, invested in a separate account. Give your nephew the money when you feel he is responsible enough to manage it on his own.
If you have the contribution room, open a separate TFSA and hold the $50,000 in that account. (The total lifetime contribution limit as of December 31, 2019, is $63,500.) That way, there will be no tax implications for you.
If you don’t have the TFSA room, keep the money in a non-registered account. You will have to pay a little tax, but I get the impression you would be okay with that.
- You could set up a TFSA with an insurance company and purchase a segregated fund with your nephew as the owner of the account and yourself named as an irrevocable beneficiary.
With this setup, your nephew would not be able to withdraw money without your consent.
If you feel your nephew is responsible enough to keep the money until retirement, I suggest the following:
Set up a second TFSA in his name; he would know you are making contributions on his behalf, and together the two of you will make investment decisions. It sounds like you should be the one guiding him on investing, and it may be a fun thing to do with your nephew once a year.
You could deposit the full $50,000 in the TFSA or, just to be safe, make the annual maximum contribution, $6,000, until you have contributed $50,000.
David, your question revolves around your nephew having enough for retirement, so here are a few other things to think about:
- A single person with a low income will likely be better off in retirement with a tax-free income from a TFSA rather than a taxable income from a Registered Retirement Savings Plan and Registered Retirement Income Fund (RRSP/RRIF). This is because government supplements and credits are based on taxable income. A low taxable income qualifies for a higher guaranteed income supplement (GIS). This is why I didn’t suggest RRSP investments.
- With the recent changes to the Canada Pension Plan (CPP), your nephew should expect CPP to replace 33% of his current income, assuming his income holds steady.
Let’s take a snapshot of what his retirement picture might look like in today’s dollars if his current annual income is $30,000: