James Hallett

From time to time, I am asked about various financial subjects or to explain certain terminology. So, this column will address some of your requests.



Question: I would like to help my grandchildren get started with investing. They are under age 15. Can I set up an account in their name?

Answer: Since an indivi-dual under the age of 18 cannot own an investment account directly, one way for you to get started would be to establish a "custodial account" under the Washington Uniform Transfer to Minors Act (UTMA).

This account can be set up through a financial institution or investment provider. Assets in the account may include stocks, bonds, mutual funds, savings accounts and life insurance.

Typically, you (the grandparent) would name yourself as the custodian. The account is reported to the IRS under the minor's Social Security number. You, as the custodian, are required to make responsible investment decisions.

Contributions to the account are considered gifts and become the property of the minor. Control of the account can be transferred to your grandchild as early as age 18. However, any assets remaining in the account must be released to the grandchild's control no later than age 21.

One tax-planning consideration connected to UTMA accounts is the so-called "kiddie tax." The minor's first $950 of unearned income, such as interest or dividends, is exempt from taxation. The next $950 of such income is taxed at 15 percent. Unearned income above $1,900 will be taxed at the parents' tax rate.

So, as a grandparent, you should consider the possible tax consequences to the minor and to the minor's parents. You also might consider other types of account ownership that still would allow you to meet your objectives.



Q: I was listening to the news the other day and heard a spokesperson from the Labor Department mention "nonfarm payrolls." What is this?

A: The U.S. Labor Department collects an amazing amount of data everyday. Throughout the year, the department reports on this data. Financial markets pay close attention to what the department produces.

Simply put, nonfarm payrolls are jobs. Last week, the department reported that jobs decreased by 85,000 for December while the data for November was revised upward to show a net gain of 4,000 jobs.

It can help to put these numbers into perspective. For example, since 1940, the number of jobs at the end of a decade has been anywhere from 20- to 38-percent greater than the 10 years prior. That is until we consider the decade just ended (the '00s). For this period, the number of jobs basically ended in the year 2009 where the decade began.

This subpar growth is particularly noteworthy due to the fact that the U.S. population increased by 10 percent during this same period. Even though the financial markets appear to be improving relative to the start of 2009, compared to where the markets were in 2000 and compared to where employment stood in 2000, one cannot be faulted for viewing the past 10 years as "the lost decade."

James D. Hallett, Hallett & Associates, P.S., is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered or excluded from registration requirements.

This column is for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.