If you have young children or grandchildren, you might put some of your college money into a tax-managed mutual fund, offered by major mutual fund companies. These funds hold stocks, so investors have the potential for stock market gains. As the name suggests, fund managers handle trading so that investors don’t have to pay taxes each year, as long as they hold onto their shares in the fund.
If you invest college money in a tax-managed fund, you can keep the account in your own name. The money won’t be turned over to the youngster when he or she comes of age, as early as 18 in some states. Instead, you remain in control.
When the children are ready to go to college, you can sell shares of this fund to raise money. If the shares have gone up in price, so tax will be owed, you can first give your shares to the student, who probably will be in a low tax bracket. Then he or she can sell the shares, pay tax at a low rate, and use the net sales proceeds to pay for higher education.
