Interesting article and info at this site

I have Coverdell, 529, and UTMA accounts

the UTMA is just for small amounts of contributions per month --- once you get over certain level of gains/dividends --- you are going to be taxed on the gains/dividends

I consider this to money to used on some things around the age of 10 - 15 ... and it will be spent before my childs applications for college financial aid

Still not sure of the best option here.

My 1 year old has accumulated perhaps $500 in cash gifts and savings bonds. I expect she will continue to receive a few hundred dollars per year in various gifts, and I'd like the money to grow at least in a decent savings account. I'd also like the freedom to invest it if and when I see a good opportunity down the road.

This money is not destined for college, and for the most part I expect it to be spent through adolescence so that it has no impact on financial aid eligibility down the road. For example, maybe it would go toward buying a car when the time comes.

I would also like her to be able to see her savings, watch it grow, understand how contributions and withdrawals affect her 'net worth', etc, when she's older.

Is there a good way to accomplish all of this? I could just mix the money in with ours, and keep an accounting separate (paying her interest, etc), but it seems to lose the 'magic' of having her own money (not that she cares at age 1... I'm thinking ahead).

UTMA accounts are really good for moderate amounts of money. Especially, if they might be targeted for spending while still a minor.

The first $850 in investment "income" is tax free and the next $850 is taxed at the childs rate. So at 5% you are talking about $17K/$34K. Just be sure to select NOT to deferr savings bond interest to make them essentially tak free vehicles

You should not use UTMA accounts for college, as has already been said Coverdell IRA and 529 plans are a much better option.

Also, you should not use UTMA accounts for a lot of money both for the tax reasons above and the fact that they will get the money at 18/21. In this case a trust is more appropiate.

My personal favorite for this purpose is twenty year TIPS in a UTMA account. Then use the interest payments for spending or buy i-Bonds.

psychtobe said:so, a UTMA is the 'account type'; do I set it up at a bank or with a broker? Let's say right now I want to put $500 in to start. I don't want to incur fees on that kind of principal.UMTA specifes a "custodial" account. You can use a bank, brokerage, or mutual fund.

With just $500 to start, I would probably use a bank to begin with. Although, there are other options. Scottrade will let you open an UTMA account for as little as $500.

Believe it or not AARP Funds allows you to set up an UTMA account for as little as $100 and additional contributions of only $25. They have some decent index funds. they have higher expenses that some (0.50%). Considering the low entrance costs, it may be work a look until you have enough money to move elsewhere. They have only five funds that make the choice easier.

You mentioned that you had savings bonds, I would keep those. They have a one year minimum hold now and three months interest penalty if cashed before five years. Also, you might consider i-Bonds. At the amount of money you are talking about, have the savings bonds report yearly. Remember the first $850 of investment income is tax free. Might as well take advantage of that while you can.