The cost of a college education is staggering. According to CollegeBoard, the average tuition, fees, room and board at a four year private college is $42,419 for the 2014 – 2015 year alone. Whether your grandchild is a baby or already enrolled at a university, the price of his education may be a significant burden on him and his parents. You want to help your grandchild afford the best education possible, but how can you do that when the maximum annual gift that you can give without tax implications is currently $14,000 or approximately one-third of what your grandchild will need to pay for one year of her education?
There Are Other Ways
While an outright gift to your grandchild may not be the best way to help her pay for her education, there are other ways that you can help her pay for her higher-education costs without paying a lot in taxes to the government. Your choice may depend on your grandchild’s age. For example:
- If your grandchild is a baby then you may contribute to a 529 plan. You can establish or contribute to a 529 education savings account for your grandchild. While the amount that you contribute annually without gift tax implications may be limited, you may reduce the size of your taxable estate and provide significant funds for investment that could grow and help your grandchild later.
- If your grandchild is already enrolled in an institution of higher learning then you can pay the college or university directly. The Internal Revenue Service (IRS) has a specific exception to the gift tax for tuition payments that are made directly to a qualifying educational institution such as a college or university. It is important to note that the exception to the gift tax exists only for tuition payments and not for fees, room, or board. Additionally, the payment must be made right to the college or university and not to your grandchild—even if you give your grandchild specific directions to use the money for tuition only.
Before you make any estate planning move, it is important to know all of the possible tax implications. If planning for you grandchild’s education is your goal then start a live chat with us today and let us help you review your options so that you can make an informed decision that is best for your family.