Author Topic: Custodial accounts for godchildren  (Read 5797 times)

AnnaD

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Custodial accounts for godchildren
« on: December 15, 2012, 02:00:56 PM »
I'm considering opening one of the following: regular savings, education, or an IRA for my godchild.
I've read some basics about the tax implications for me and ownership transferring at the child's age of majority, but I cannot decide what would be best. She is only 6 mos, but I'm keen to start a deposit account now for her that will be a demonstration of the power of savings.
Anyone have advice on this or personal experience?

RadicalPersonalFinance

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Re: Custodial accounts for godchildren
« Reply #1 on: December 15, 2012, 02:18:46 PM »
Decide what your goal is for the money.  What will be its end use.  You also need to consider how important tax savings are for you.

If you want tax-advantaged accounts, you have some hoops to jump through.

If you are sure she will go to college (hard to know at 6 months...mainly you need to consider is your/her family the kind that strongly encourage kids to go to college), a 529 plan is the way to go.

You can't do an IRA for her--it's a good option if she's employed and earning income, but there's no legitimate way to do it at 6 months old.  She has to legitimately have earned income to do an IRA.

You can do an UTMA/UGMA account, but those have big potential to be troublesome: the child absolutely, unequivocally gets the money (all of it) immediately upon reaching the age of majority.  That might be tough to swallow.

If you want full control and aren't worried about the tax:

Savings is easy but you have no growth for many years.  Consider purchasing shares of a favored company, shares of a mutual fund, or some sort of savings bond if you're risk averse.  Simple and straightforward.

AnnaD

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Re: Custodial accounts for godchildren
« Reply #2 on: December 17, 2012, 10:14:04 AM »
Decide what your goal is for the money.  What will be its end use.  You also need to consider how important tax savings are for you.

If you want tax-advantaged accounts, you have some hoops to jump through.

If you are sure she will go to college (hard to know at 6 months...mainly you need to consider is your/her family the kind that strongly encourage kids to go to college), a 529 plan is the way to go.

You can't do an IRA for her--it's a good option if she's employed and earning income, but there's no legitimate way to do it at 6 months old.  She has to legitimately have earned income to do an IRA.

You can do an UTMA/UGMA account, but those have big potential to be troublesome: the child absolutely, unequivocally gets the money (all of it) immediately upon reaching the age of majority.  That might be tough to swallow.

If you want full control and aren't worried about the tax:

Savings is easy but you have no growth for many years.  Consider purchasing shares of a favored company, shares of a mutual fund, or some sort of savings bond if you're risk averse.  Simple and straightforward.

Thanks 7years for the insights.  I thought for sure I could put all that poop and vomit to work, but alas, you have burst my bubble ;)

As you say it is hard to determine if a 6 month old will be bound for college so I am leaning toward not putting funds there.

So my options are basically a dismal savings account or a taxable investing account to buy stocks/mutual funds/bonds.  Hmmm...
While I hate to do just a simple savings account I may start there and then transfer funds into an investment account later.

Thanks!