My infant daughter, who is not quite 1, has a piggy bank that already contains over $200. I want to open an account that will grow for her and that she can use starting around the age of 18. As money is contributed to her piggy bank we plan to take it out and add it to her investment account. For such long-term savings, with what will likely be minimal contributions from year to year (a couple hundred to a thousand dollars or so), where is the best place to put her money for the greatest return, factoring time and fees?
—Cody W. Dowden, Hot Springs, Ark.

First consider how much control you'd like over the account's eventual use. Do you want your daughter to be able to use the money for anything? Or are you envisioning this being tied to college costs?

If the thought is college, consider a 529 college-savings plan, which offers tax-free withdrawals for college expenses, says Indianapolis-based financial planner Elaine Bedel. Start by looking at your home-state's plan: In Arkansas, in-state residents who open a GIFT College Investing Plan can deduct up to $5,000 in annual contributions from their state income taxes ($10,000 if married) and possibly get up to $500 in matching contributions from the state. Investments are managed by Vanguard. For more on 529 plans, go to Savingforcollege.com.

For greater flexibility, you could simply open a taxable account at your mutual fund company or brokerage firm of choice, managing it as you please. Money can be held in your daughter's name via the Uniform Transfers to Minors Act (UTMA), which allows for custodial accounts. Control of the funds is transferred when the child reaches the "age of majority," which in most states (including Arkansas) is 21. If you go this route, familiarize yourself with the "kiddie tax," which allows the first $950 in annual investment income to be tax-free. Alternatively, you could invest the account in your own name, pay annual taxes at your rate, and gift the money as you see fit.

-- Stephanie AuWerter

Got a question for the help desk? Send it to