|
Investing in a Loved One's Future
Dear Jeff:
Can I open a fund for a child, in their name, without being a direct relative? I would like to provide for my goddaughter's future and am not sure how to go about it.
Jeff Says:
I am so proud of you for your concern about your goddaughter's financial future. With education costs skyrocketing at an annual rate of over seven percent, we should all focus a little more attention on education savings.
If your goddaughter is a minor, you may have difficulty opening an investment account in her name only. Here are some alternatives.
Perhaps one of the easiest is a savings or investment program under the Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA). Virtually all mutual fund applications provide you with this option and it is simply a matter of checking the appropriate box and selecting a custodian.
Think of a custodian as an informal trustee. He or she manages the money and decides when it should be spent for the needs of the child. You could even act as the custodian. At a certain age, usually either 18 or 21, the money must then be transferred to the child.
The Education IRA may also ideally suit your situation. However, if you would like to save more than the maximum allowable of $500 per child, then you could use this in conjunction with the UTMA account.
Whatever method you choose, you must be aware of its advantages and disadvantages. You should also be aware of ancillary issues such as annual gifting limitations and how assets owned by the child will effect college funding. As always, I strongly recommend that you consult your advisor first.
Share your question with other ThirdAgers, post your message in the Discussions.
Missed a week? Peruse past editions.
More about Jeff Fleming
Please read our disclaimer.
|
