Uniform Accounts Are Ideal For Children`s College Funds


Many parents are very concerned about saving enough money to pay for their school-age children`s college education. Some couples worry even before their children are born.

This is no surprise. With the cost of a college education rising faster than the general inflation rate, some parents can expect to spend more on sending their children through college than they spent on their homes.

Some experts predict that the cost of a four-year college degree will cost more than $100,000 by the year 2000. Whatever the cost may be, getting a head start is the surest way to make sure little Johnny or Suzie can afford college.

One of the best ways to save for your child`s education is by using the Uniform Transfer to Minors Act or Uniform Gift to Minors Act registration. These little-used accounts can help you effectively save money for your child`s future and reduce your income tax bite at the same time.

Uniform accounts have distinct tax advantages for parents saving for college over regular savings accounts.

When monies are deposited into a Uniform account, you can shift the tax obligation from your usually higher tax bracket to your child`s lower tax bracket. Depending upon your child`s total earnings (work and investment income), you may not owe any tax on the Uniform account earnings at all if your child is in the zero tax bracket.

There are exceptions to this rule, though. If your child is under 14 years and he or she has more than $1,200 in unearned income (dividends, interest and capital gains), the earnings would then be taxed at the parents` tax rate. For children over 14, the monies are always taxed at the child`s rate, not the parents`. Once the Uniform account reaches about $10,000, parents should pay close attention to the account`s performance and taxable income.

Transfers into a Uniform account are not subject to federal gift taxes as long as the annual amount given as a gift is less than $10,000 per person, or $20,000 per couple.

Until your child reaches the age of majority, usually 18 but variable among states, the trustee or custodian (usually mom or dad) maintains complete control over the assets. This includes withdrawals and decisions on how to invest the money.

One potentially significant drawback to Uniform accounts can occur when the trustee has to relinquish control. At that time, the child has the discretion to do whatever with the money.

Even though you may have earmarked these funds for college, your little darling may decide on a new car, stereo or other nice but frivolous items. All you can do is grit your teeth, because the account becomes their property when they are old enough.

For full details on Uniform accounts, consult your tax adviser or call your local Internal Revenue Service office for a copy of Publication 929, ``Tax Rules for Children and Dependents.``

Good ol` EE savings bonds are also an attractive vehicle for accumulation of college funds. Depending upon your income levels, these underappreciated gems can provide both competitive returns and tax-free income for your kids. But you must meet certain income guidelines and register the bonds properly.

There are a number of fund families that welcome Uniform account business even if the size of your account may be small. A little homework will uncover lots of fund families that either reduce the minimum account size (generally around $250) or waive it altogether if you open an automatic investment plan.

These automatic investment plans are where you make a small investment at regular intervals. This regular investment can be as low a $25 a month. All automatic investment plans call for a pre-authorized bank withdrawal from your checking account.

For millions of Americans, the bulk of their net worth in retirement is made up of two assets -- their home and life insurance policies. Why? Because both of these assets require regular monthly payments.

If saving for your child`s college education has eluded you so far, perhaps an automatic investment plan is the best way to discipline yourself to set aside the money. And one of the smartest places to put this money is in a growth mutual fund inside a Uniform account.


Sun Sentinel Articles