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Hello!

I am trying to sort out all sorts of investment questions related to saving for my newborn daughter, Emily. I've been doing tons of research on the Fool, but for each question I've answered, I've come up with at least one additional question.

I'm hoping a clever Fool might be able to help me out.

My original plan was to open a Coverdell Educational IRA with E-Trade. But then one of my Mom's cousins announced that he wanted to start an account for Emily. I have no idea what sort of amount he is considering, but I wouldn't be surprised if it were rather substantial. I just received the application from his financial adviser to complete my details (as the custodian) and Emily's details (as the minor). The account type specified in the application is a "Gift/Transfer to Minor (UTMA/UGMA)". Fortunately, Emily's SSN hasn't turned up yet, so I still have some time to figure out what I want to do.

I really like the tax free nature of the Coverdell IRA – very similar to a Roth IRA, which I understand. But the deeper I get into this, the more I think that maybe a Custodial Account is the way to go.

I do have some questions about some specific areas that I think will help me make my decision...

Federal Gift Tax Exclusion: As I understand it, the current exclusion is $11k, and the amount gifted is not deductible by the donor or taxable to the donee. Is this correct?

• Can such a gift be deposited into either a Coverdell IRA (up to the annual limit) or a Custodial Account?

• I understand that a donor can give $11k to, say, each of their children. But can the donee receive only $11k in gifts for the year under the exclusion? Or could they receive $11k from various sources? (Not that I think we're really going to have a problem with this!)

Kiddie Tax: As I understand it, the first $750 in unearned income is not subject to tax. The next $750 is taxed at the child's rate. Everything above $1500 is taxed at my rate. When Emily turns 14, everything will be taxed at her rate, regardless of the amount. Is this correct?

• Because I am living and working overseas (I'm in the UK, working for a US company), I qualify for the 911 Exclusion. Would Emily also qualify for this when we file her US tax return? That would certainly preclude the likelihood of any kiddie tax.

• My wife and I are planning, sometime in the next five years, to move to the States and start our own business. I like the articles I've read on the Fool about "Putting Junior on the Payroll" and consider that we might do that sometime down the road. Would Emily be able to take her earnings and deposit them into a Custodial Account? Or the Coverdell IRA? Or...since she had earned income, could she open and contribute to a Roth IRA – in addition to a contribution being made to the Coverdell IRA?

• My investment style tends to be buy-and-hold, typically with growth stocks that don't pay dividends. So odds are that we wouldn't run into too much trouble with the kiddie tax until Emily is older – so if we could time things for when she turns 14, we wouldn't have to worry too much about it at all.

Can one open a Coverdell IRA as well as have a custodial account?

And now to really start some head scratching... Because Emily is a dual citizen, she qualifies for a Child Trust Fund here in the UK. We can contribute up to £1,200 per year in the account. It resembles a Roth IRA in that the contributions are post-tax and no tax is due on income or gains in the account. The big question: What do we have to do with this as far as Uncle Sam is concerned? Would we have to report on the capital gains in the account?

Thanks for your help – I'm sure I'll probably come up with a few more questions before it is all over...

Cheers,
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