My college education would have been more difficult if it were not for a gift from my grandfather, a timberman with the Ayer & Lord Tie Company. His ability to earn a remarkable living would not have been possible without his faithful wife, mother of their 11 children. For the gift I will be forever grateful.
Among our client base, it is not uncommon that clients help with their grandchildren’s primary, secondary, college and even graduate school education. In most cases, it is a good thing for tax and investment purposes, which we highlight in this week’s blog. Just as I fondly remember my grandfather for what he did for me, your grandchildren likely will remember you fondly when you help with their education.
Ways Grandparents Can Help with Education Costs. This article provided by the American Institute of CPAs summarizes ways grandparents can help with college costs, addressing outright cash gifts, paying tuition directly, and Section 529 plans.
Wealthy individuals are cutting their tax bills by prepaying family members’ tuition bills for multiple years. In a private letter ruling, the IRS has ruled that tuition bills for multiple years can be prepaid and they won’t be considered a gift for tax purposes. Since this article was written, the annual gift tax rate has risen to $14,000 for 2014. Private letter rulings are decisions by the IRS in response to taxpayer requests for guidance. It interprets and applies the tax laws to a specific set of facts and binds only the IRS and the requesting taxpayer. Read further in this reprint of a Wall Street Journal article on this planning technique.
How Tax Savings from a College Savings Plan Could Pay for a Year of College. The option of front-loading college funding makes a tax-deferred college savings plan a great way to avoid taxes on the future growth of funds earmarked for higher-education expenses. One projection is that taxes avoided over a 1-year savings horizon could pay for a full year of college.
Structure your gift so that it does not mess up a student’s financial aid. When it comes to qualifying for financial aid, the way gifts are structured matters. If you think your grandchild may qualify for financial aid, consider the techniques presented in this article.
And in case you missed it, click here to read last week’s blog post which discusses the economy picking up steam in the 2nd quarter.
We hope you enjoy reading these articles along with us and hope you find them informative. Please forward this to your family and friends.
J. Mark Nickell & Co.
Disclosure – The articles mentioned in This Week with J. Mark Nickell & Co. are for information and educational purposes only. They represent a sample of the numerous articles that the firm reads each week to stay current on financial and economic topics. The articles are linked to websites separate from the J. Mark Nickell & Co. website. The opinions expressed in these articles are the opinions of the author and not J. Mark Nickell & Co. This is not an offer to buy or sell any security. J. Mark Nickell & Co. is under no obligation to update any of the information in these articles. We cannot attest to the accuracy of the data in the articles.