Considerations
Investing for college with a custodial account set up under the Uniform Gift to Minors Act will generate tax savings for most taxpayers, as at least part of the earnings may be exempt from federal income tax. Children under 14 years of age are allowed to receive $800 of unearned income tax-free on an annual basis. The next $800 is taxed at the child's rate. Income over $1,600 is taxed at the parent's highest rate until the child reaches age fourteen. At that time, all income over $800 is taxed at the child's lower tax rate, even income that is then realized on appreciation that has been building up during the child's pre-14 years.