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What About A Custodial Account For My Kid?

Contributed by mm | November 3, 2006 3:04 PM PST





Janet Bodnar's nice column at Kiplinger's Personal Finane reminds me that a custodial account under the name of my 4-year old can mean an easy $500 annual tax savings. Plus, I love the fact that this can easily lead to many father/son discussions over the next decade and a personal-finance smart kid. (I will leave it to my kid to decide if he wants to start a personal finance blog, though.)

From Kiplinger's Personal Finance:

With a custodial account, Gus's family would also qualify for tax breaks. In both 2006 and 2007, the first $850 of a child's investment earnings is tax-free, and the next $850 is taxed at the child's rate. Any earnings above that are taxed at the parent's rate until the child turns 18. But that's a lot of tax-advantaged income before the parent's rate kicks in.

If Gus prefers to keep control rather than enjoy tax breaks, he could save in his own name and decide what to do with the money later. In both 2006 and 2007, for example, it's possible to give an individual up to $12,000 (or $24,000 if a spouse joins in the gift) without incurring a gift tax.

But as one reader told Gus, "If you really want your son to learn about investing along the way, seeing his name on the account is pretty powerful."
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