Funding college from grandparents and taxes

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rick51
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Location: Maryland

Funding college from grandparents and taxes

Post by rick51 »

[Topic is now in Personal Finance (Not Investing) - mod mkc]

I know there are treads on this topic, but I have read a few that left me unsure on an issue that should be simple. For example, if you pay your grandchild’s tuition directly to the university (and it must be tuition only - no other costs) that is not taxable and leaves the current $18,000 gift tax exclusion available to apply to any additional costs. So, a grandparent can actually contribute tuition plus $18,000 tax free, correct? In addition, a FASFA change for 2024 removes consideration of financial assistance from grandparents.
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Wiggums
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Re: Funding college from grandparents and taxes

Post by Wiggums »

My understanding is that aside from the annual exclusion limit, the IRS also waives the tax for gifts that are used to pay tuition expenses. There's no limit on how much you can pay but you have to give the money directly to your student's school. Otherwise, any amount over the annual exclusion limit is subject to the gift tax.

I am not sure of the FASFA specific rule change you are referring too.
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TomatoTomahto
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Re: Funding college from grandparents and taxes

Post by TomatoTomahto »

There most likely are no gift tax considerations, but there are reporting requirements above $18k.

In addition to tuition paid directly to the school, medical payments made directly to the provider are also outside the scope of the reporting requirement.
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JustNewton
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Re: Funding college from grandparents and taxes

Post by JustNewton »

See this website: https://www.marinerwealthadvisors.com/i ... h-college/

Basically, it explains that as a grandparent you can pay the entire tuition bill and it will not be subject to any form of gift tax - you are not limited to the current exclusion amount of $18,000. That being said, a grandfather and a grandmother can still gift $18,000 each to the student for a combined $36,000 in 2024.

My understanding of the "new" FAFSA rules is that grandparent assets are not counted in completing the form, but that a gift to the student would be considered income of the student and could affect financial aid (loan eligibility) under the FAFSA. I think that you would need to check with the college or university to determine if you paid them directly for say, room and board, if that would be considered a gift to the student.

If you grandchild is a dependent student you could always gift the $18,000 or whatever amount up to $18,000, to the student's parent and then have the parent pay for the remaining charges. The FAFSA does not weigh parent assets as heavily as student assets when computing potential financial aid.
Jack FFR1846
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Re: Funding college from grandparents and taxes

Post by Jack FFR1846 »

I'm very big into the practical and reality. From my own personal experience with my son in expensive college and grandparents willing to help.

As mentioned, a grandparent or cousin or total stranger can pay the tuition directly to the college and there is no reporting requirement. Then another $18k can go as a gift. At least at my son's college, there is a balance due to the Bursar's office. They do NOT break it down. If for the semester, they owe $42,129, they don't break it into $20k for tuition, $20k for room and board and $2,129 for graft and corruption. Why does this matter? Well, grandparent #1 can give the Bursar a check for $20k with a note on it (for tuition). Next, grandparent #2 can come in and say "I want to give you a check for my grandson's tuition". The Bursar will say "Ok, make it out to Wicked Petulant Institute". That grandparent leaves a check for $20k. Another random person comes in and says "I want to pay some of this stranger's tuition, how much?". The Bursar will say $2,129. The random person says "I want this to be for tuition". The Bursar says "Awesome, Make the check out to Wicked Petulant Institute". And in comes the check.

The point is, the college (at least my son's college) does not designate what the check is paying for. It's like being at a restaurant in a group and one person saying "I want to only pay for the meat" and the next saying "I'll pay for the desert" and the last one saying "I'll pick up the rest and the tip". The waiter isn't going to put in any notation that one check is for meat, one for desert and one for everything else and the tip. So this, I feel is a big loophole, just like Roth conversions are a big loophole. It seems like you're going around the rule and you are, but you are still covered as you intend to pay tuition, so you've paid tuition. The end.
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mnnice
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Re: Funding college from grandparents and taxes

Post by mnnice »

Jack FFR1846 wrote: Tue Jul 09, 2024 1:08 pm I'm very big into the practical and reality. From my own personal experience with my son in expensive college and grandparents willing to help.

As mentioned, a grandparent or cousin or total stranger can pay the tuition directly to the college and there is no reporting requirement. Then another $18k can go as a gift. At least at my son's college, there is a balance due to the Bursar's office. They do NOT break it down. If for the semester, they owe $42,129, they don't break it into $20k for tuition, $20k for room and board and $2,129 for graft and corruption. Why does this matter? Well, grandparent #1 can give the Bursar a check for $20k with a note on it (for tuition). Next, grandparent #2 can come in and say "I want to give you a check for my grandson's tuition". The Bursar will say "Ok, make it out to Wicked Petulant Institute". That grandparent leaves a check for $20k. Another random person comes in and says "I want to pay some of this stranger's tuition, how much?". The Bursar will say $2,129. The random person says "I want this to be for tuition". The Bursar says "Awesome, Make the check out to Wicked Petulant Institute". And in comes the check.

The point is, the college (at least my son's college) does not designate what the check is paying for. It's like being at a restaurant in a group and one person saying "I want to only pay for the meat" and the next saying "I'll pay for the desert" and the last one saying "I'll pick up the rest and the tip". The waiter isn't going to put in any notation that one check is for meat, one for desert and one for everything else and the tip. So this, I feel is a big loophole, just like Roth conversions are a big loophole. It seems like you're going around the rule and you are, but you are still covered as you intend to pay tuition, so you've paid tuition. The end.
Hmm . . .
Not my experience as either a student or a parent of a student. I have always seen some sort of itemized list
Tuition $x,xxx, room x,xxx, meal plan x,xxx, rando fee $xxx, parking ticket $xx
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