Helping Grandchildren with College Costs
Scarsdale accountant Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions!
Contributing to a Section 529 college savings program is a great way for grandparents to help their grandchildren pay for college. It is also a great way to remove assets from the grandparent’s estate without paying estate tax.
As an added feature, money in a 529 plan owned by a grandparent is not assessed by the federal financial aid formula when qualifying for student aid. Grandparents, as well as other taxpayers, have a unique opportunity for gifting to Section 529 college savings plans by contributing up to $70,000 at one time, which currently represents five years of gifts at $14,000 per year. ($14,000 is the annual gift tax exclusion amount for 2013). A married couple who elects gift-splitting can contribute up to double that amount ($140,000 in 2013) to a beneficiary’s 529 plan account(s) with no adverse federal gift tax consequences.
Example: Electing to spread a 529 plan gift over five years.
In 2013, Linda contributes $75,000 to a 529 plan account for the benefit of her grandson, James. She makes no other gifts to James in 2013. Because the gift exceeds the $14,000 annual gift tax exclusion, Linda elects to account for the gift ratably over five years beginning with 2013. Only $70,000 (five times the current annual gift tax exclusion) is eligible for the election; therefore, Linda is treated as having made an excludible gift of $14,000 in years 2013-2017, and a taxable gift of the remainder ($5,000) in 2013.
Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us for all inquiries and to receive your free personal finance consultation!
Herman and Company CPA’s proudly serves Scarsdale NY, Larchmont NY, White Plains NY, Bedford NY, Chappaqua NY and beyond.
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