"Employing" Children

Well, since we're on the topic of children, I guess it's never too early to start thinking about college funding, etc.  Of course, it's very clear WHERE this child will be attending school, right?!?!  If he/she would like to remain in good stead with a certain soon-to-be-father, then the choice is easy, correct?!?!  Yeah, yeah, I know, I'm a big talker.  It really does not matter to me.  I just pray for a well-rounded and thoughtful child.  My goal is to just not screw the child up like I have so many of my pets in the past.  Anyway, back to the topic at hand - financing a child's education.  Ideally, I'd like to help the child do that themselves.  I've read some good material from the IRS and other sources regarding "employing" your children.  I call it "employing" children, but in reality you are giving them a gift.  Yet, I think it's important that kids work (i.e. take out the garbage, other household chores ) hard for their "allowance".  As of 2004, the IRS allows EACH parent to give EACH child $11,000/yr without paying a gift tax.  That's $22,000/yr!  Then, you allow the child to contribute to their "401K" plan by having the parents deduct a certain percentage of their allowance for investment purposes.  The great thing is that children under 14 do not pay taxes on the first $800 of investment income in the form of interest and dividends.  Plus, the next $800 is only taxed at 10%.  That allows a child under the age of 14 to have $1600 of investment growth/income a year while paying minimum taxes.  Remember, that's investment INCOME, not the amount they actually put into an investment account.  In other words, if the child invests $8000 in one year and earns 10% ( which would give them $800 in investment income ), then that $800 is tax free money.  This is a good deal since parents are taxed at 15% on capital gains and dividends for their investments.