Stock Markets Exposed
Investing for Kid?
My son is 1 year old and I would like to start putting some money towards his future. What are the different investing options available ? If I open a stock investing account and the value of stock goes up then would i be liable for capital gains ? Would my son have to file his tax return - if he gets that income.
Public Comments
- Start a good old savings account. This will gain interest and then when there is enough to work with, roll it over to CD's.
- First, let me say that you are wise to start saving/investing for your son at this early age. I would NOT use a savings account when you have 17 years before college. Savings accounts typically return only a little more than the inflation rate (and after taxes, it might not even keep up with inflation). That's fine for preserving money that you need in the next year or two, but the buying power of your money is not going to grow much in a savings account. For money you don't need for awhile, I think stocks are the best choice. Historically, over longer time periods, stocks have the highest return of any class of investments. You can invest in a mutual fund from a company like Vanguard, Fidelity, American Century, T. Rowe Price that tracks a major market index (e.g. S&P 500, Russell 2000). Unless we have an historically bad period in the next 17 years, that's likely to provide your son far more money than a low-yielding savings or money market account would. As for taxes, my understanding is that the first $850 of income for a child is tax free (that's their standard deduction) and the next $850 is taxed at the lowest rate (10%). If his income in any year is over those limits (which adjust upward over time to account for inflation), then the amount over $1700 will be taxed at the parents' marginal rate. If his income is under $850, you do not need to file a return for him. If it's over $850, you do, but it's a pretty simple return. I think there's an option to just include his income with yours, but I think that means you'd pay more because all the income would be taxed at your marginal rate. For college money, you might want to check into a 529 College Savings Plan. That lets you save money to be used for college without having to pay taxes along the way - and I think in some states will actually get you a tax deduction now. There are also Education IRAs that might be of interest.
