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 Charles
B. Carlson, CFA
Contributing Editor, Dow Theory Forecasts
If time
is the most important factor in an investment program, than
it's impossible to be too young to be an investor. Indeed,
you should start an investment program as early as possible.
Starting
an investment program is easy regardless if you are a young
adult (18 years or older) or a youngster. Once you reach the
age of majority (18 in most states), you may have an investment
account registered solely in your name. Youngsters under the
age of 18 are not permitted to have their own investment accounts.
However, several ways exist to introduce youngsters to investing.
When establishing
investment accounts for youngsters, consider carefully how
you want the account registered. If you choose to have the
account in your own name, you will be responsible for taxes
on the account. The good thing is that you also retain complete
control over the account for as long as you want.
An alternative
is to set up the account as a Uniform Gift To Minors Account
(UGMA). Funds in the account are in the minor's name and social
security number and are considered to be owned by the minor.
Dividends paid on the account are taxable, most likely at
a preferred tax rate. The adult custodian is responsible for
the account until the minor reaches the age of majority. Any
withdrawals from the account are payable to the custodian
on the minor's behalf until that time. However, once the youth
has reached the age of majority, which is 18 in many states,
control of the account reverts to the child to do with as
he or she sees fit. This is the downside of setting up a UGMA.
Parental control is lost at the age of majority.
Another
consideration is that college financial aid decisions could
be impacted if a child has sizable assets in a UGMA.
For these
reasons, it is important to understand the pluses and minuses
of UGMAs before registering the investments in that form.
Remember
-- There is no right or wrong way to set up an investment
account for a child. What may work for a friend may not work
for you. For that reason, make sure you set up the account
in the way that meets you and your child's objectives.
Setting
Up A Child's Investment Account
Kids
and the Power of Time
A
"Kiddie" 401(k) Plan!
Kids
Should Buy STOCKS!
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Setting
Up A Child's Investment Account