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MASH Cash Dear Maggie, I would like to gift some money to my nephew who is the apple of my eye. I know his parents are not that great with money so I am concerned about how to give it to him. As I understand, the time to invest for children is as young as possible. A Doting Auntie
Dear Auntie,
A person can gift another person a maximum of $10,000 per year without gift tax. After that one must report the gift on a tax return. Now whose name should you put it in? That seems to be your question. If you put it in the child's name and social security number, you need a custodian (signer and investment decision maker). The custodian could be you or your sibling. If you became the custodian you wouldn't have to worry about your sibling's financial (or lack of) savvy. You actually have a great "out" here - you can say you want the boy to know the gift was from you. The child pays taxes on the money after a minimum interest has been accumulated. You should look at a good growth mutual fund. Try to find out which has a history of being tax efficient. This means that the fund doesn't pay out huge capital gain distributions, usually at the end of each year. Some funds do manage the portfolio based on putting losses against gains and thus reducing the "taxableness" of the investment. You truly are a doting auntie. Most people want the satisfaction of watching the child open yet one more toy; your gift will be meaningful and long remembered by your nephew. |
What a thoughtful gift for a child: the beginnings of an education
fund. You are right, the best time to put away money is when the child
is a baby or as young as possible. The power of compounding is awesome
(think of how much interest you pay on your car payment, only this
is the opposite and for a lot longer).