If you are planning to make gifts to build the future savings of children or grandchildren, it's important to select the right financial account. We're not talking about saving for future college costs. The goal here may be to fund financial accounts for children that they can later use toward the down payment on their first home or to give them a head start on their retirement.

The basic issue with investment accounts for children is that, generally, individuals under the age of majority, which, depending on the state, is either age 18 or age 21, are not permitted to directly own certain types of financial accounts. Here are a few options:. The version you choose depends on the laws of your state.

Under this type of account registration, the account owner and custodian is an adult typically a parent and the child is the beneficial owner. When the child reaches age 18 or 21, depending on state law , then the account should be legally converted into sole ownership in the child's name.

Investment income from these accounts can have some favorable tax breaks. If the child is 19 and not a student, or 24 regardless of student status, then all income is reported on the child's own tax return. Roth IRA -- Children can open and contribute to a Roth IRA as long as they have wage income, regardless of their age.

Contributions can be invested in stocks or mutual funds, and distributions after retirement are tax-free. These also allow for tax-free withdrawals of contributions and penalty-free withdrawals of earnings when taking money out for the first-time purchase of a home.

If your kids have any taxable earnings in and you want to give them a head start on the future purchase of a home or their retirement savings, then help out by opening and making a contribution to their Roth IRA. Grantor Trust -- Individuals who want to give their children or grandchildren larger financial gifts but want to maintain some control as to how the money is managed and when the children receive it should consider what's called a Grantor Trust.

Under these trusts, parents specify a trustee and how the money contributed is to be used for the child's education, care, etc.

This most common use for this type of trust is for estate tax-planning purposes. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.

Investing for Your Kids - The Non-IRA Option

He has also appeared on the Oprah Winfrey Show and is the author of two books. Find out what activities and attractions make these 20 cities and town some of the best places to retire around the world.

Generics are a great way to save money in lots of cases, but here is a look at some clear exceptions. Quotes delayed at least 15 minutes. Market data provided by Interactive Data. Powered and implemented by Interactive Data Managed Solutions News provided by The Associated Press.

Looking to invest for your child? 7 best options that can secure their future - The Financial Express

CBS News CBS Evening News CBS This Morning 48 Hours 60 Minutes Sunday Morning Face The Nation CBSN. Log In Join CBSNews. By Ray Martin MoneyWatch April 26, , 2: Comment Share Tweet Stumble Email. Spring cleaning financial records What to do with your tax refund How to Save Money in The basic issue with investment accounts for children is that, generally, individuals under the age of majority, which, depending on the state, is either age 18 or age 21, are not permitted to directly own certain types of financial accounts.

Here are a few options: Featured in Moneywatch 20 of the coolest places to retire in the world Find out what activities and attractions make these 20 cities and town some of the best places to retire around the world 10 products you should never buy generic Generics are a great way to save money in lots of cases, but here is a look at some clear exceptions.

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