For children 14 or older when the tax year starts, investment income is taxed solely at their marginal rate, which usually is 15 percent. Establish a custodial account. The custodian manages the assets until the minor reaches the age of majority. Investment income also is subject to the Kiddie tax depending on the child's age. The child assumes control of the assets when they turn 18 to 21, and hopefully they won't spend it on a motorcycle and a couple of jet skis.
Parents typically name themselves as custodians for UTMAs or UGMAs.
However, estate planning experts point out that property in the account will be included in the custodial parent's estate should the parent die before the custodianship ends when the child reaches the age of majority. Tuition or medical gifts. Contributions to pre-paid tuition plans or college savings plans may be subject to gift tax. The Roth can be later used for college or for the child's eventual retirement. The information in this column is based on financial data, research and the advice of financial experts, but is not intended as professional financial advice.