A ridiculous idea – but profitable!Ian Whiting
My mind works in strange ways as my readers know – so here is another slightly off-beat idea on RRSPs – for children!
I took the time recently to confirm a long-held belief – most people selling RRSPs aren’t aware of all of the possibilities – and neither am I for that matter – however, here is an idea that no-one I asked had the slightest understanding of that which I was asking. My question was simple (or at least I thought so anyway): “What is the earliest age at which a person can purchase an RRSP?”
Without exception, I received answers that fell within this brief summary – “the year after they have earned income.”
I found this a bit disconcerting, particularly coming from many professional advisors. The correct answer, of course, is the same day the receive their SIN from the Federal Government. In other words, within 3 to 6 weeks after they are born.
But wait you say – they don’t have any earned income so how can they contribute?? My response – what about the lifetime $2,000 over-contribution limit? I usually receive a puzzled look from the person with whom I am speaking and then they say: “what about it?”
Let’s be a wee-bit creative here – I am NOT a rocket scientist I assure you – my mind just works somewhat differently than most other peoples’!
These days, parents and grandparents spend literally thousands of dollars on toys and other gadgets that have life spans counted in days and weeks and maybe months – but that’s it. What about a gift that will GROW with each passing year?
Rather than all of the toys and related odds and sods, put $2,000 into an RRSP for the baby as soon as the parents receive an SIN. The actual source of the money is irrelevant of course – but the concept is sound.
If a baby has an RRSP with $2,000 in it at age zero and leaves it until age 65, it will grow to $18,713.40 assuming a compound growth rate of 3.50% and as much as $25,597.47 with a compound growth rate of 4.00%. I will leave it to my readers to play with other assumptions – my purpose here is just to get people thinking about the possibilities of acting on this idea.
The $$ amount doesn’t sound like a lot – and it really isn’t – but it is certainly worth a lot more than the toys and gadgets that are generally purchased for a new-born child in their first year of life. What a special Christmas gift (oops – don’t want to be politically incorrect!) – holiday season gift – for the new one in your life!
All the best to everyone for a wonderful and SAFE holiday season and a prosperous 2013! Cheers Ian
Posted: December 17th, 2012 under Bargains, Children, Estate Planning, Finance, Financial Planning, General, Government, Investments, MONEY®, Personal Finance, Saving.
Tags: age 65, children, excess contributions, over-contribution, retirement, RRSP, SIN, tax-free