||Ask Dr. Don
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?
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withdrawn at any time for any purpose.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.