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Home >> Special Situations >> Minors
Opening Accounts for Grandchildren
I would like to open accounts for my grandchildren. I am unable to see them because of conflicts with my son, but would like to put money in accounts for them to use when they reach legal age. How do I go about getting this done?
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 There is more than one way to accomplish what you want to do, and how you proceed may depend on how much money you want to set aside, and whether you know the kids' Social Security numbers. If the numbers are large, there may be gift tax implications, and you should consult a tax professional, and perhaps an attorney.
One route that's available is a "529" Tuition Plan, which is an investment that earns income on a tax-advantaged basis. You can be the trustee of the plan, and deposit money into it from time to time, while the earnings accrue under the child's Social Security number. You can then arrange for the money to be paid out for school expenses when the time comes. These plans often use mutual fund investment formats, and you should know that they can lose value.
At a bank, you could open a custodial account under your state's Uniform Transfers to Minors Act. You can name yourself custodian, but you'll need the kids' Social Security numbers, under which any interest earned will be reported. As the fund gets larger and interest paid increases, your son will need to get the annual 1099-INT forms from the bank so that he can ensure that the income is properly reported to the IRS. That will be his responsibility, not yours. Under such an account, you control the funds, but you have to use them for the kids' benefit. It need not be only for school. You would be obliged to hand the funds over to the kids when they reach 18 or 21, depending on the state law. You can also talk to an attorney about setting up a trust for the kids' benefit, if the dollars involved are sufficient to warrant the front-end expense involved.
Published on BankingQuestions.com 1/08/09
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