Investing for Your Children in Canada: RESPs, In-Trust Accounts and TFSAs Compared

Start with the goal

Before choosing an account, be clear about what you're saving for. Money meant for education has a natural home in an RESP, where government grants can add a meaningful boost. Money meant for broader goals, such as helping with a first home, can be harder to plan for because the child may not use it until well into adulthood, and because some accounts hand control to the child at a fixed age.

It also helps to decide how much control you want to keep. With an RESP, the subscriber (usually the parent or grandparent) keeps control of the money. With an informal in-trust account, the assets are generally considered the child's. With a TFSA, the account belongs to the young adult outright. Those differences matter as much as the tax rules.

The RESP: the default for education savings

An RESP is a registered account designed for post-secondary education savings. Contributions aren't tax-deductible, but investment growth is tax-sheltered while it stays in the plan. The big draw is the Canada Education Savings Grant (CESG).

According to the Government of Canada, the CESG pays up to 20% of the first $2,500 contributed to an RESP each year, for a maximum of $500 per year. Unused grant room carries forward, so a child can receive up to $1,000 of CESG in a calendar year when there's catch-up room, which requires contributing $5,000 that year. The lifetime CESG maximum is $7,200 per eligible beneficiary, and the grant is available until the end of the calendar year the child turns 17, with extra conditions for beneficiaries aged 16 or 17. Families with low or middle incomes may also receive an additional CESG of 10% or 20% on the first $500 contributed each year.

The lifetime contribution limit is $50,000 per beneficiary across all RESPs combined, and the CRA charges a 1% per month tax on excess contributions that aren't withdrawn. Government grants don't count toward that $50,000 limit.

When the child enrols in qualifying post-secondary education, grants and investment growth come out as Educational Assistance Payments, taxed in the student's hands, where income is often low. The original contributions can be returned without tax. If the child doesn't pursue post-secondary education, your contributions still come back tax-free, but grant money generally has to be returned and investment growth paid to you is taxed at your regular rate plus an extra 20% (12% in Quebec), unless you can transfer it to an RRSP. Read the plan's rules. Our RESP guide and CESG guide cover the details.

Informal in-trust accounts

An informal in-trust account is a regular non-registered investment account opened by an adult 'in trust for' a child. It doesn't require a formal trust deed, which makes it simple to set up at most brokerages and banks. It's used for goals beyond education, or for savings above what an RESP needs.

The trade-offs are significant. There's no government grant and no tax shelter: income and gains are taxable every year to someone. And because the money is generally considered to belong to the child, the child may be able to claim it once they reach the age of majority, whatever you had in mind for it. If keeping control matters to you, a formal trust drafted by a lawyer is a different and more expensive tool.

Trust reporting rules have also been changing. The CRA says bare trusts were not required to file a T3 return for taxation years ending on or after December 31, 2024 and before December 31, 2026, but that reportable bare trusts may be required to file for taxation years ending on or after December 31, 2026. Whether a particular in-trust account is treated as a bare trust depends on how it's set up, so check with your financial institution or a tax professional before you rely on one.

How the attribution rules work

Canada's attribution rules stop parents from shifting investment income to a child simply to have it taxed at the child's lower rate. Under the CRA's long-standing guidance, when you transfer or lend property to a related minor (a child under 18 who doesn't deal with you at arm's length, or a niece or nephew), income earned on that property, such as interest and dividends, is generally taxed in your hands, not the child's. The same applies to property transferred to a trust for that minor.

There are important exceptions:

• Capital gains: the CRA states that the attribution rule for minors does not attribute taxable capital gains or losses from a later sale of the transferred property. Gains are generally taxed to the child.
• Income on income: income earned on reinvested income, sometimes called second-generation income, is generally not attributed back to you.
• Fair value: property the child pays for at fair market value with their own money is outside the rule.

This is why in-trust accounts are often invested for growth rather than for interest or dividends: capital gains realized in the account are generally taxed to the child, who may pay little or no tax. Getting this right takes good records, including where the money came from and when. If a grandparent rather than a parent contributes, the analysis can differ, so get advice for your specific situation.

The TFSA: for when the child becomes an adult

Children can't have their own TFSA. The CRA says you must be 18 or older to open one, and in provinces and territories where the age of majority is 19, you must wait until 19 to open it, though contribution room starts accumulating at 18 and carries forward.

Once a child is an adult, a TFSA becomes one of the most flexible tools available: growth and withdrawals are tax-free, and withdrawn amounts are added back to contribution room the following year. Many parents gift money to an adult child to contribute to their own TFSA. Under the related-minor rule above, attribution generally applies to transfers to minors, so gifts to an adult child for their TFSA don't raise the same issue, though loans can be treated differently. The trade-off is the same as with an in-trust account: the money belongs to the young adult.

You can also save in your own TFSA with a child's goal in mind. That keeps full control with you, at the cost of using your own contribution room. See our TFSA guide for how room and withdrawals work.

Comparing the options side by side

• Best for education: RESP, thanks to the CESG and tax-deferred growth. The subscriber keeps control.
• Best for flexibility while the child is young: your own TFSA earmarked for the child, or an in-trust account if you accept that the money becomes the child's.
• Best for an adult child: their own TFSA, and possibly their own FHSA if they're saving for a first home.
• Tax on growth: RESP growth is sheltered until withdrawn; in-trust accounts are taxed annually, subject to attribution; TFSA growth is tax-free.
• Government money: only the RESP comes with federal grants, and some provinces offer their own education incentives.

A common approach is to contribute enough to an RESP to collect the full CESG each year, and then direct extra savings to a TFSA or in-trust account for non-education goals.

What to invest in

The right investments depend on when the money will be needed. For an RESP that will be tapped when the child is 18, a common approach is to hold more growth-oriented investments in the early years and shift gradually toward safer holdings, like GICs or short-term bonds, as university or college approaches. Many group and bank RESPs do this automatically; self-directed RESPs let you manage it yourself with low-cost ETFs.

For longer-term goals, like a down payment decades away, a diversified, low-fee portfolio is usually more important than picking particular stocks. Whatever you choose, keep fees in check; over 18 years, a difference of a percentage point a year adds up.

Teaching as you save

Investing for a child is also a chance to teach them about money. Showing a teenager their RESP statement, explaining how the grant works, or letting them follow an in-trust account's growth can make compounding concrete. A child's own savings account is a good starting point for younger kids; see bank accounts for kids and our guide on teaching kids about money for age-appropriate ideas.

Frequently asked