Finance Quick Answers
My wife and I are saving for our son’s college education. We have been placing accounts in his name, but wondered if we should place some investments in our name.
Because of the tax laws, the common question is should I save in my child’s name? Many parents think that saving in a child’s name will reduce income taxes while saving for the future. Under the Kiddie Tax - children under age 14 may earn up to $650 tax free. The second $650 is taxed at 15%. Anything over $1,300 is taxed at the parents' tax rate. Once a child turns 14, the Kiddie Tax rules no longer apply. The first $650 is tax free, the next $24,000 or so is taxed at the 15% tax rate. Assets in your child’s name will more adversely impact financial aid opportunities than assets maintained in the parent's name. You may want to place assets in both places. Any potential tax saving should be weighed against any financial aid that may be necessary.
Source: Talking Dollars Makes Sense Newspaper Column by Patrice Dollar, University Extension, Consumer Education Specialist, Fall 1998
Sandra McKinnon, Consumer & Family Economics Specialist, University of Missouri Extension
Cynthia E. Crawford, Ph.D., Consumer & Family Economics Specialist, University of Missouri Extension
Last update: Tuesday, July 15, 2008