Question — When my daughter was little, I saw no harm in letting her push the buttons on the ATM. When she became a teenager she decided to run away with one of her little friends but not before she stole my wife's ATM card and cleaned out our checking account. Under no circumstances should a child have access to your ATM card or PIN.

Answer — There's a huge gulf, in both time and attitude, between a toddler who pushes buttons on an ATM and a teenager who takes the money and runs.

In the intervening years, it's up to parents to teach their kids how to handle money responsibly so this kind of incident doesn't happen.

Even in the best of circumstances, however, parents should think twice about giving out ATM cards and PIN numbers, especially if there's any question about a child's maturity or trustworthiness.

Frankly, though, if your daughter raided your account and ran away, you have bigger worries than responsible money management. When you get her back, make her repay you — but get at the root of the problem.

Question — I have my kids' college funds in a custodial account, with me as custodian. Can I use funds currently in those accounts to start a state college-savings plan for the kids?

Answer — You can take the funds out of the custodial accounts, but you can't take away your children's legal right to get access to their money. So, for example, your children must be the beneficiaries of the college-savings plan, says John McCabe, legal counsel for the National Conference of Commissioners on Uniform State Laws.

And parents can't transfer savings from one child's account to another's if the first child doesn't go to college — an option you have if you start out with a college-savings plan.

Also, each child should retain the right to get the money at age 18 or 21, or whatever is the rule in your state (in most states it's age 21). If your kids chose not to use the money for college, they'd have to pay the penalty.

Taxes can be tricky, too. If the assets are currently invested in stocks or mutual funds, you'd have to sell the shares to get cash to invest in a college-savings plan. If your kids are at least 14 years old, profits would be taxed at their rate; if they're younger, your top tax rate would apply.

In the end, it might be simpler to keep the custodial money where it is and start the college-savings plan with new contributions.


Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, DC 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com.