Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Investment options for children

Dear Dr. Don,
I want to determine the best investment options for my infant. I want to start saving for her future now but don't necessarily want to be locked in to a college savings program (in case she doesn't go to college). Can you suggest some reputable and fairly comprehensive sources of information on the best tax-sheltered savings and investment options for dependent, minor children?
Gwen Graduation

Dear Gwen,
My recommendation is that you wait to see what shapes up with the president's proposed Lifetime Savings Accounts. As Laura Bruce points out in this Bankrate feature, the accounts can be used for any type of saving.

Individuals, regardless of income or age, can save up to $7,500 a year. Contributions are not tax-deductible, but the money grows tax-free and distributions are tax-free. Money can be withdrawn at any time for any purpose. Anyone can contribute money to the account. In other words, a parent or grandparent could set up an account for a child and fund it. The contribution limit will be adjusted for inflation each year.

Prior to Jan. 1, 2004, you can convert balances in an Archer Medical Savings Account, Coverdell Education Savings Account and Qualified State Tuition Plans to a Lifetime Savings Account. Balances in those accounts cannot be converted after 2003.

If you want to get started now, I like the Savings Bonds for Education plan because the money stays in your name; taxes can be deferred until you cash the savings bonds and the proceeds, when used to pay for qualified college expenses, are tax-free. Your household income in the year of redemption must meet guidelines for you to use this exclusion and other restrictions may apply. The inflation indexed Series I savings bonds qualify for this program, as do the standard Series EE savings bonds.