Investing for Your Kids

Accounts You Can Open For Your Children

Last updated: 11/27/2000

  Traditional IRA Roth IRA Education IRA UGMA/UTMA Guardian
Maximum Annual Contribution $2,000 $2,000 $500 per child (above and beyond the $2,000 total for other IRAs) No maximum No Maximum
Tax Deductibility of Contributions Up to 100%, depending on Annual Gross Income Not tax-deductible Not tax-deductible Not tax-deductible Not tax-deductible
Tax Treatment of Earnings Tax-free, if used for higher education Tax-free Tax-free Interest, dividends or gains taxed to the child Taxed to the parent
Adjusted Gross Income Eligibility As of 2000, eligibility ranges are $32K-$42K for individuals and $52K-$62K for married couples filing jointly. In 2001, these will increase to $33K-$43K for individuals and $53K-$63K for married couples filing jointly. Gradual annual limit increases are scheduled through 2007. $95,000 or less for individuals, $150,000 or less for married couples. Above these levels, phase-out begins. Ceilings are $110,000 for individuals and $160,000 for married couples. $95,000 or less for individuals; $150,000 or less for married couples No restrictions No restrictions
Withdrawal Restrictions No penalty if the withdrawal is for college expenses No penalty if the withdrawal is for college expenses. No penalty after age 59 1/2, if the money's been in there 5 years. Must be used for higher education, or earnings are taxed and may be subject to 10% penalty. None, but the parents can't legally close the account. None
Must the Child Have Earned Income? Yes Yes No No No
Who Controls the Account? Parent, until child is age 18 or 21 Parent, until child is age 18 or 21 Parent, until  child is 30 or all assets are distributed. Parent, until child is age 18 or 21 Parent