What's the smartest way to invest money gifted to a child?
I was in a similar situation with my now 6 year old.  So I'll share what I chose.  Like you, I was already funding a 529. So I opened a custodial brokerage account with Fidelity and chose to invest in very low expense index fund ETFs which are sponsored by Fidelity, so there are no commissions.  The index funds have a low turnover as well, so they tend to be minimal on capital gains. As mentioned in the other answer, CDs aren't paying anything right now.  And given your long time to grow, investing in the stock market is a decent bet. However, I would steer clear of any insurance products.  They tend to be heavy on fees and low on returns.  Insurance is for insuring something not for investing. American Century has their Heritage Fund: https://www.americancentury.com/sd/mobile/fund_facts_jstl?fund=30 It has a good track record.  Here are all the mutual funds from American Century: https://www.americancentury.com/content/americancentury/direct/en/fund-performance/performance.html A mutual fund is a good wayway to go as it is not subject to fluctuations throughout the day whereas an ETF is. CDs pay less than the going rate so that the banks can earn money. Investing is risky right now due to the inaction of the Fed.  Try your independent life insurance agent. You could get endowment life insurance. It would pay out at age 21. If you decide to invest it yourself try to buy a stable equity fund. My 'bedrock' fund is PGF.  It pays dividends each month and is currently yealding 5.5% per year. Scottrade has a facility to automatically reinvest the dividend each month at no commission.  http://www.marketwatch.com/investing/Fund/PGF?CountryCode=US
"&gt;When you work, you are creating value.  This is incorrect.  Not all businesses add value to society - there's a reason capitalism function based on ""profit"" and ""loss"" signals.  Some businesses destroy value.  &gt;How do you think the concept of money came about?   http://www.youtube.com/watch?v=5eP6iujgeWI  &gt;Why not? This is the reason that hedge fund managers and CEOs pay so little in taxes...most of their compensation is in stocks and bonds, taxed as investment income. If you were paid in gold, i'm sure you could claim the same.   Because investments are fundamentally different from money.  They each serve a purpose - money is a store of value, while investments are risk-taking strategies to increase value.  &gt;That's sillie: i'm emotionally invested in a gift economy. I accept a fiat paper standard.   You appear to be afraid of what would happen if people were allowed to voluntarily choose what money to use, without government interference.  Anyway, I've lost interest in this discussion.  Have a good day." "When you give a gift to another person or receive a gift from another person there is no impact on your taxes. You do not have to report certain amounts in your income, including the following: ...   -most gifts and inheritances; http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/nttxd-eng.html If you give a gift to a charity or similar organization you can reduce your taxes. It is my recollection that when a family member gives a large amount of money to a child, tax on the income that money earns (typically interest) should be paid by the giver, not the child, but I can't find any publications to that effect on the CRA Site. There is a bit of language about ""Gifts"" from an employer that are really employment income: Gifts and other voluntary payments 1.3 The term gift is not defined in the Act. In common law jurisdictions, the courts have said that a bona fide gift exists when:   •There is a voluntary transfer of property,   •A donor freely disposes of his or her property to a donee, and   •The donee confers no right, privilege, material benefit, or advantage on the donor or on a person designated by the donor. 1.4 Whether a transfer of property has been made voluntarily is a question of fact. In order for a transfer to be considered voluntary, there must be no obligation to make such a transfer. Amounts received as gifts, that is, voluntary transfers without consideration and which cannot be attributed to an income-earning source, are not subject to tax in the hands of the recipient. 1.5 However, sometimes individuals receive a voluntary payment or other valuable transfer or benefit by virtue of an office or employment from an employer, or from some other person. In such cases, the amount of the payment or the value of the transfer or benefit is generally included in employment income pursuant to subsection 5(1) or paragraph 6(1)(a). (See also Guide T4130, Employers’ Guide - Taxable Benefits and Allowances.) Similarly, voluntary payments (or other transfers or benefits) received by virtue of a profession or in the course of carrying on a business are taxable receipts. http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s3/f9/s3-f9-c1-eng.html#N10244 If the people in question are adults who are not related to each other and don't have a business or employment relationship, then you should find that regardless of the amount of the gift, neither giver nor recipient will have a tax consequence." If I were in your shoes (I would be extremely happy), here's what I would do: Get on a detailed budget, if you aren't doing one already. (I read the comments and you seemed unsure about certain things.)  Once you know where your money is going, you can do a much better job of saving it. Retirement Savings: Contribute up to the employer match on the 401(k)s, if it's greater than the 5% you are already contributing. Open a Roth IRA account for each of you and make the max contribution (around $5k each).  I would also suggest finding a financial adviser (w/ the heart of a teacher) to recommend/direct your mutual fund investing in those Roth IRAs and in your regular mutual fund investments. Emergency Fund With the $85k savings, take it down to a six month emergency fund.  To calculate your emergency fund, look at what your necessary expenses are for a month, then multiply it by six.  You could place that six month emergency fund in ING Direct as littleadv suggested.  That's where we have our emergency funds and long term savings.  This is a bare-minimum type budget, and is based on something like losing your job - in which case, you don't need to go to starbucks 5 times a week (I don't know if you do or not, but that is an easy example for me to use).  You should have something left over, unless your basic expenses are above $7083/mo. Non-retirement Investing: Whatever is left over from the $85k, start investing with it. (I suggest you look into mutual funds) it.  Some may say buy stocks, but individual stocks are very risky and you could lose your shirt if you don't know what you're doing.  Mutual funds typically are comprised of many stocks, and you earn based on their collective performance. You have done very well, and I'm very excited for you. Child's College Savings: If you guys decide to expand your family with a child, you'll want to fund what's typically called a 529 plan to fund his or her college education.  The money grows tax free and is only taxed when used for non-education expenses.  You would fund this for the max contribution each year as well (currently $2k; but that could change depending on how the Bush Tax cuts are handled at the end of this year). Other resources to check out: The Total Money Makeover by Dave Ramsey and the Dave Ramsey Show podcast. "As soon as you specify FDIC you immediately eliminate what most people would call investing. The word you use in the title ""Parking"" is really appropriate. You want to preserve the value. Therefore bank or credit union deposits into either a high yield account or a Certificate of Deposit are the way to go. Because you are not planning on a lot of transactions you should also look at some of the online only banks, of course only those with FDIC coverage. The money may need to be available over the next 2-5 years to cover   college tuition If needing it for college tuition is a high probability you could consider putting some of the money in your state's 529 plan. Many states give you a tax deduction for contributions. You need to check how much is the maximum you can contribute in a year. There may be a maximum for your state. Also gift tax provisions have to be considered. You will also want to understand what is the amount you will need to cover tuition and other eligible expenses. There is a big difference between living at home and going to a state school, and going out of state. The good news is that if you have gains and you use the money for permissible expenses, the gains are tax free. Most states have a plan that becomes more conservative as the child gets closer to college, therefore the chance of losses will be low. The plan is trying to avoid having a large drop in value just a the kid hits their late teens, exactly what you are looking for." In the US, if it's a large donation to a tax-exempt organization (401c3 or equivalent), you may want to consider giving appreciated equities (stocks, bonds, mutual fund shares which are now worth more than you paid for them).  You get to claim the deduction's value at the time you transfer it to their account, and you avoid capital gains tax.  They would pay the capital-gains tax when they redeem it for cash... but if exempt, they get the full value and the tax is completely avoided.  Effectively,  your donation costs you less for the same impact.  It does take a bit of work to coordinate this with the receiving organization, and there may be brokerage fees, so it probably isn't worth doing for small sums.)Transfers within the same brokerage house may avoid those feee.) So again, you should talk to the charity about what's best. But for larger donations, where larger probably starts at a few thou, it can save you a nice chunk of change. Pool their money into my own brokerage account and simply split the gains/losses proportional to the amount of money that we've each   contributed to the account. I'm wary of this approach due to the tax   implications and perhaps other legal issues so I'd appreciate   community insight here. You're right to be wary. You might run into gift tax issues, as well as income tax liability and appropriation of earnings. Not a good idea at all. Don't do this. Have them set up their own brokerage account and have them give me the   login credentials and I manage the investments for them. This is   obviously the best approach from a tracking and tax perspective, but   harder for me to manage; to be honest I'm already spending more time   than I want to managing my own investments, so option 1 really appeals   to me if the drawbacks aren't prohibitive. That would also require you to be a licensed financial adviser, at least to the best of my understanding. Otherwise there's a lot of issues with potential liability (if you make investments that lose money - you might be required to repay the losses). You should do this only with a proper legal and tax advice - from an attorney and/or CPA/EA licensed in your state. There are proper ways to do this (limited partnership or LLC, for example), but you have to cover your ass-ets with proper operating agreements in place that have to be reviewed by legal counsel of each of the members/partners, Parents are eminently capable of gifting to their children.  If it's a gift call it a gift. If it's not a gift, it's either a loan or a landmine for some future interpersonal familial interaction (parent-child or sibling-sibling).  I an concerned by some phrasing in the OP that it is partially down this path here.  If it's a loan, it should have the full ceremony of a loan: written terms and a payment plan (which could fairly be a 0% interest, single balloon payment in 10 years or conditional on sale of a house or such; it's still not a gift). "Assuming that the will that bequeathed the money to your son did not stipulate any restrictions or set up a trust to hold the money until your son turns 25, or something like that, I don't think you have much choice except to put the money in a UTMA account (which of course can be invested in whatever  the trustee (which could be you, or you and your wife jointly) decides.  Note: not a UGMA account since the money is not a gift. You also don't have any option except to turn the account over to your son when he turns eighteen. The point is, the investment can be in anything as long as the account is registered as a UTMA account.  But do remember also that your son is entitled to sue you for breach of fiduciary duty if you don't take good care of the money, so that blowing it all in risky investments is also not a good idea. If you are worried about taxes and your son's income being taxed at your rate, one way of deferring the issue is to buy US Savings Bonds. The interest can be deferred from taxation until the bonds are redeemed. Edit added in response to JoeTaxpayer's comments: But a better strategy is to declare the accrued interest each year as unearned income of the child on the kiddie tax form that is part of your tax return, and pay the tax, if any, that results To ease your mind or conscience, think of the tax that you pay on your child's behalf as a gift to your child! In any case, there will likely not be much tax due since the first $950 of unearned  income of a child is tax-free and the next $950 taxed at 10%. Then, when the bonds are cashed in, the interest that accrued (and was ""taxed"") in earlier years can be deducted  from the interest (cash in price minus purchase price) that you (or your son) will be told is the interest that the bonds earned. Of course, if kiddie tax is not a concern (and it shouldn't be, given the amount available for investment), an even better strategy is to set up the UTMA account(s) in long-term investments in low-cost index funds or ETFs (as JoeTaxpayer suggests) and pay the tax, if any, as it comes due."