Minor savings account- tax question

[FrugalFish]

We'll soon be opening a savings account for our DD (a toddler), using a small amount of money left to DH by his grandmother (about $1500, and another relative has said they have $2000 for her for the account, but I'm not holding my breath).

In opening the account, DH's name will also need to be on it (if DD is under 18)- as a joint owner, I assume. I assume this means that DH and I will be responsible for taxes on interest earned in this account? What about when she is 16, has a job, and needs to file her own taxes- who is responsible for the interest on that account then?

What is the best way to open a basic savings account for a minor? Any thoughts or ideas are welcome.

TIA

[Like2Plan]

We'll soon be opening a savings account for our DD (a toddler), using a small amount of money left to DH by his grandmother (about $1500, and another relative has said they have $2000 for her for the account, but I'm not holding my breath).

In opening the account, DH's name will also need to be on it (if DD is under 18)- as a joint owner, I assume. I assume this means that DH and I will be responsible for taxes on interest earned in this account? What about when she is 16, has a job, and needs to file her own taxes- who is responsible for the interest on that account then?

What is the best way to open a basic savings account for a minor? Any thoughts or ideas are welcome.

TIA

FrugalFish,
If this is your DD's $$ --(or you are giving it to her), you can set up a UTMA account. It lists the minor as account owner and your DH (or you) will be the custodian. The interest would be your DD's taxable interest. The first $850.00 of unearned income is not taxed, the second $850 of unearned income is taxed at your DD's rate and above $1700 of interest is taxed at you and your DH's rate (thanks to kiddie tax laws). (Note: this exemption goes up each year).

Another link
Here is another consideration...

[Like2Plan]

link to IRS web site

[FrugalFish]

Thanks for the info. I was considering an UTMA/UGMA, but not sure that is where I want to go with this particular account. I suppose that would be the wiser thing to do with the money. It's not money DH or I will ever touch- it is hers alone.

[Like2Plan]

FrugalFish,
I can not believe the coincidence! My DS-19 is home from college for the Thanksgiving break and I was taking him around to various appointments this afternoon. I picked up Kiplingers December issue in the waiting room--there was an article on changes to the Kiddie tax.
It used to be kids were not subject to it after age 14. They changed it retroactively in 2006 to up to age 18.

I can not believe they changed it again! Starting in 2008, they include unearned income for college aged kids who are claimed as dependents (ages 19 to 23)!
link to the article

[FrugalFish]

Wow, that's a good article. Thank you for posting it.