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Investing for Child's Future

I recently had a baby, and I'm preparing for his future.I have considered savings bonds or endowment insurance in my child's name. Is there any method of savings that would be a tax advantage to me? -- Mrs. R. T.

Neither of the methods you mention will be likely to keep up with inflation or provide as many benefits as some alternative, such as investing in your child's name directly.

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You can, for example, give your child securities through Gifts to Minors provisions, with you or some other adult as custodian. Your bank or stockbroker can assist you at no cost.

You could now invest in income stocks or deep-discount bonds (bonds that are sold for much less than their face value) for nearly double the annual income your child would receive from savings bonds or endowment insurance. Or you could invest in growth-oriented mutual funds with income automatically reinvested.

By giving the funds under the Gifts to Minors Act, you make certain that income flows directly to your child. And, until his income reaches $1,000 minimum for any one year, he will not be required to file an income-tax return. Thus, the income is essentially tax free. One caution -- if you list yourself or your husband as custodian, and you or he should pass on before your child reaches maturity, the funds given him under your custody will become part of the estate. Thus, you might want a parent or a trusted friend to act as custodian. If substantial funds are involved, you might wish to set up a trust rather than use the simple Gifts to Minors provisions. As custodian or trustee, you can manage the investments for your child. Plan on switching funds from one investment to another to maintain growth and income, rather than simply buy and hold securities.


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