Q&A: RRSP for 16-year-old?

A reader wants to know: Is it a good idea to open a plan for a teenager?


Question: My 16-year-old daughter filed her first ever tax return this year, getting a $15 refund in the process! She is now eligible to make a small contribution to an RRSP account. Do you think it is worth opening an account at this early stage? – Mike D., Miramichi, NB


Gordon Pape answers: I deal with this at some length in Money Savvy Kids, the new book I co-authored with my daughter Deborah Kerbel. The bottom line is that we think it’s a good idea if a young person is seriously interested in starting a long-term savings program, but no one should be pressured into it.

Of course, retirement is an irrelevant concept to a 16-year-old but money saved in an RRSP can be used for other purposes as well. It can help pay for post-secondary education or to provide a down payment for a home when the time comes. And it is not necessary to claim a deduction in the year the contribution is made. It can be carried forward and used when your daughter is finished school and working full time.

If she does open a plan, have her invest the money in a no-load mutual fund with a good track record. Don’t let it languish in a savings account that pays almost nothing.

There’s one possible problem. A reader reported being refused by several banks when he tried to open an RRSP for a 12-year-old with earned income, even after he showed the notice of assessment from the Canada Revenue Agency. He was told the minimum age is 18. That is true for TFSAs but not RRSPs. If it happens to you, ask to speak to someone more knowledgeable. – G.P.

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