Question:I would like to start mutual fund accounts for my two young grandchildren, ages 17 months and 12 months, but I don't have a lot of money. Can you suggest some funds that have low minimums or will let you invest a small amount each month?
Answer: If you can afford to make an automatic monthly commitment of $50, you can buy the entire U.S. stock market with TIAA-CREF Equity Index fund (TCEIX; 1-800-223-1200).
An automatic purchase of $50 a month will also get you into ABN Amro/Veredus Aggressive Growth (VERDX; 1-800-443-4725), a relatively new fund that looks for rapidly growing smaller companies. It's a riskier bet than the index fund but not out of line for grandchildren who are young enough to ride out market swings.
If you'd like to play it a bit safer, you only need $250 to invest in Strong Balanced fund (STAAX; 1-800-368-3863), a more conservative mix of large-company stocks, bonds and cash.
Use the Fund Finder feature at www.kiplinger.com to search for more low-minimum funds.
Question:My son earned $1,275 in 2001 for a newspaper route. He was given a 1099, indicating that this was nonemployee business income. He saved a lot of the money in a savings account that earned him a few dollars in interest, but certainly not $250. It appears from your column that he does not have to pay income tax. Does he have to pay Social Security tax?
Answer: Your son is home-free as far as taxes are concerned. Even though his paper-route earnings are considered business income, he doesn't have to pay Social Security tax because of a special exception in the tax law for newspaper carriers under 18. And because your son's investment income was less than $250, he isn't required to file an income tax return unless his total income passed $4,550 in 2001.
Question: Does the $11,000 annual gift-tax exclusion apply to other family members or just parents and grandparents? Can I give my niece $11,000 tax-free?
Answer: You can give as many people as you wish annual gifts of $11,000 each without triggering the federal gift tax. And the recipients don't have to be related to you in any way. Your niece is fortunate to have an aunt as generous as you.
Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, D.C. 20006. Or send the good doctor an e-mail message to jbodnar@kiplinger.com.