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How to help your kids without hurting your bottom line
It’s tougher than ever for young adults just starting out to establish themselves, with many facing reduced employment or job layoffs due to COVID-19. As a result, some young people are turning to their parents for help covering expenses.
That, in turn, can create challenges for many parents. Those who are retired or nearing retirement age for example, may be concerned that withdrawing money from their savings for their children could lead to financial hardship for themselves.
If you’re thinking of offering a helping hand to your adult children, whether in the form of a gift or a loan, here are some tips to help you do it without harming your own financial picture.
Choose the right source
The good news is, you can give any amount of money to your children without triggering taxation. But before you raid your assets to come to their rescue, take a careful look at which sources will cause the least damage to your portfolio.
It’s usually best to draw on cash first, if you have sufficient reserves. Most savings accounts earn very little now, and there will be no tax consequences.
You could also consider cashing in a GIC. Check to see when they’ll come due and which ones earn the lowest interest rate. It might be worth sacrificing earnings on a more recent, lower-interest GIC to preserve higher-interest earnings on an older GIC.
Only consider selling equities or funds after a discussion with your advisor, as this could have consequences, such as causing your portfolio to become unbalanced or triggering a tax bill.
If you need to take the money from a registered account, a Tax-Free Savings Account (TFSA) is a better option than a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF). You won’t pay tax on funds withdrawn from a TFSA and you can redeposit the money again later, unlike an RRSP or a RRIF.
Alternatively, you might consider a loan such as a home equity line of credit. This would allow you to borrow at a low interest rate without disrupting your investments.
Consult your advisor
Before you lend or gift money to your kids, it’s very important that you talk to your Carte Financial Group advisor about your plans. He or she will ensure you’re withdrawing money in a way that will protect your own financial future.