Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 2
I'd like to put $3K in a 12-month CD for him. I found a local CD at 4.25%. I'm trying to decide if it's worth it to put it in a custodial account, or just keep it in my name. If we put about 3K in the CD, he's only earning about $127. If I understand correctly, the first $700 in interest is tax-free. The second $700 in interest is taxed at the child rate. After that, it's taxed at the parents rate.

Are there any reasons I shouldn't put the money in a custodial account?

You may want to also consider a Coverdell account which can be used for college as well as education prior to college. The gains are not taxed when used for qualified educational expenses. Here's some information :

Your custodial account would have the advantage of being able to be used for many things to benefit your child other than education and has no limit(other than gift issues) on the contributions.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.