You want to open savings for your children, help them finance their studies, their first car or even their first real estate purchase. A beautiful project that deserves consideration to choose the appropriate product.
What do you want to finance? This is the question you should ask yourself before opening any long-term savings plan in your child’s name. Start by choosing between two options.
Option 1: finance a project at any time
You want your child to be able, when he reaches the age of majority, to finance his first car, his studies, a real estate purchase or simply to have a nest egg aside to ensure his future.
In this case, choosing life insurance is a good solution. He will in fact have no constraints in releasing the sums he will need throughout his life. In addition, parents and grandparents will be able to make donations on their contract.
As a reminder, each parent can donate up to 100,000 euros per child, exempt from tax. This reduction applies in one or several installments. every 15 years. For Grand parents wishing to make donations to their grandchildren, the reduction is 31865 euros, over the same period. And this, whether the child is an adult or not.
comes of age, the child can receive an additional family donation of 31,865 euros exempt from tax every 15 years. The donor must be under 80 years old on the day of the donation.
Life insurance is more flexible than the Retirement Savings Plan (PER) regarding financing projects. However, a deputy pact can be backed by the child’s life insurance policy.
THE assistant pact a manual gift, defines the age up to which the sums are blocked, unless the donor agrees. It’s a temporary unavailability at the latest until the 25th anniversary, specifies Gilles Belloir, director of Placement-Direct. By this means, it is also possible to define the person(s) administering the sums invested until the child comes of age and to impose possible conditions for the reuse of the donation: real estate purchase or even financing of studies .
Option 2: finance a given project, many years from now
A completely different choice: the money put aside is blocked or, at least, accessible only under certain conditions. This can be reassuring for parents, explains the director of Placement-Direct.
In this case, the PER is ideal. This product can only be released before retirement age under certain very specific conditions, detailed here:
- death of spouse or PACS partner;
- disability of the holder, their spouse or PACS partner, their children;
- situation of over-indebtedness, expiration of unemployment insurance rights;
- judicial liquidation of the holder’s company;
- acquisition of the main residence but only for funds from voluntary payments by the saver or employee savings.
Compare the best retirement savings contracts
Some insurers may require additional supporting documents to ensure that the sums paid into a PER in the name of the minor have been declared to the tax authorities or request that the sums be withdrawn from a bank account in the name of the minor. of the minor, adds Gilles Belloir.
Once you have chosen your option, be aware of the advantages and disadvantages of PER like life insurance for your child.
PER: tax advantage on entry… tax on exit for the child
On the tax side, life insurance will offer your child total freedom, since the contract horizon is necessarily greater than 8 years.
Is my life insurance blocked for 8 years?
On the other hand, on the tax side, the PER presents you with a small dilemma… One of the first motivations for opening a PER for your child is to be able to benefit from the tax advantage between, explains Gilles Belloir. And for good reason, until the child comes of age, it is the parents who benefit from the advantage of deductibility of payments. This makes it possible to reduce the amount of the household’s taxable income, adds the director of Placement-Direct.
But how does it work? Amounts voluntarily deposited into a retirement savings product during your working life can be deducted from your taxable incomewithin the limit of 10% of your annual income, or 35,194 euros maximum for 2023.
This advantage is therefore also valid when you pay into the PER in the name of your minor child. The higher your marginal tax rate (MTR), the more income taxes this option will save you. Indeed, if you have reached the payment limit on your own PER, you can also benefit from the tax advantage reserved for your child’s PER. As the latter has no resources, the ceiling of his PER is equivalent to 10% of the Social Security ceiling, or 4114 euros in 2023.
But be careful of the backlash, because these payments will not escape taxation forever. In reality, this tax is deferred… upon exit. When your child withdraws the amounts paid, they will be included in the amount of their taxable income..
Taxes, returns… Life insurance or PER, what is the best investment to prepare for your retirement
Yes, parents will save on their tax household income but be careful not to be blinded because they are subsequently retaxed, warns Gilles Belloir. If this concerns large sums, this would lead to a significant level of taxation, 30% or more of TMI.
Parents will save on their tax household income but be careful not to be blinded because they are subsequently retaxed.
In addition, parents who pay money into a child’s PER must be vigilant about the amount given so as not to be caught by the tax authorities for disguised donations.
The payment can be considered as a customary gift (and then not requiring a declaration) or as a manual donation. The qualification is assessed based in particular on the income and assets of the donor. Larger payments must be declared to the tax authorities by completing a Cerfa form. You may then be required to pay gift tax if you exceed the inheritance tax exemption, underlines, in a note dedicated to the PERCaroline Mounier, heritage engineer at Eres.
You may then be required to pay gift tax if you exceed the inheritance tax exemption.
Furthermore, once your child is no longer attached to your tax household, he will be able to benefit from the same deductibility advantage for the payments he makes to his PER.
PER is not the only product that provides certain benefits. Life insurance also allows you to benefit from a tax reduction, but only on exit. For a contract of more than 8 years, the holder will be able to benefit from a annual tax reduction of 4,600 euros for a single person (and 9200 euros for a couple) on the interest withdrawn.
Comparison of the best PER
Financial management: PER like life insurance
In the context of life insurance as for the PER, the saver (the legal guardian then the child upon reaching the age of majority) has the possibility of managing his assets himself or opting for pilot management, i.e. i.e. to entrust the management of your contract and your investments to a management company, specialized in market monitoring.
For these two products, each decision to withdraw, arbitrate or change management mode must be the subject of a agreement signed by both parents (or legal guardians), as long as the child is a minor.
The PER offers the possibility of pilot management over the retirement horizon. The sums paid are invested in more or less risky vehicles but with a greater potential return (depending on the profile chosen) during working life and are repatriated to secure vehicles as retirement approaches. The holder of the retirement savings therefore has nothing to do except reap any profits.
Performance and costs: life insurance and PER, almost twins
Whether for life insurance or a PER, savings are invested in almost identical funds and offer similar access to different asset classes. THE performances are therefore extremely closeparticularly for the portion invested in euro funds whose capital is guaranteed.
Retirement savings plan: what is your PER’s euro fund worth?
Whatever your choice of product, the performance will depend on the assets chosen but the range of units of account (UC) available via PER is generally the same as for life insurance.
Concerning the fees charged, the situation is again almost similar for life insurance and the PER. According to the report of the Financial Service Advisory Committee (CCSF), the average costs in 2022 of a PER amount to 3.18% for payments and 0.87% for management costs.
You will have to go to online players to find contracts without payment fees. Don’t forget to compare these costs using the summary table available online.
PER or life insurance for your child: the results
- Concretely, to choose which savings product is most suitable for your child, it is essential to know what type of project you want to help them finance: if life insurance allows your child to choose upon reaching the age of majority, the project for which he wishes to use his money, the release of a PER is done at the time of retirement or for the purchase of a main residence in particular. The latter can therefore have a reassuring side for parents.
- Furthermore, the PER offers a considerable tax advantage upon entry thanks to the deductibility of the payments from your taxable income. Be careful though, taxation does not disappear, it is simply postponed.
- In terms of management, fees or performance, life insurance and PER are relatively similar.
Compare the best life insurance offers