The costs of college are rising each year, which is why so many grandparents are looking for ways to support their grandchildren in getting an education. If your grandchild is young, then he/she may have some time to save. If they are in college now or soon, however, you might be considering one of the following options. Make sure you take care to stay within the IRS rules and consult a tax professional. Here are a few of the more common options…
Paying for Tuition
Did you know that if you directly pay for your grandchild’s tuition, the money is not subject to gift tax? If you go this route to assist a grandchild, you’ll definitely want to consult with a tax professional but it is a simple way for you to provide tuition assistance of any amount.
You’ll need to pay the school directly rather than writing out a check to your grandchild.
Be aware that this may affect his/her financial aid status and the tax-exempt status includes tuition only. It does not apply if you are paying for room, board, or books.
Loan Your Grandchild Money for Tuition
You are allowed to give your grandchild an interest free loan of up to $10,000. If you loan him/her more than that, there are some IRS rules regarding minimum interest you must charge, but that amount is low.
You can even set your own terms. For instance, not requiring them to pay the money back until after they graduate. Keep in mind, however, that if you end up forgiving the loan, your grandchild could end up having to claim the forgiven amount on their income taxes.
Again, this is an instance where you should consult with a tax professional to make sure everything is carried out properly.
Pay Off Their Student Loans
Has your grandchild already accrued loan debt from school? Whether they are still in school or have graduated, you can pay some or all of their student loan debt. Doing this does not affect their financial aid status, should they still be in school.
One factor to be aware of, however, is that the IRS would consider the money to be a gift so if you give over $14,000 in one calendar year ($28,000 for married couples filing jointly), then the money may be subject to gift tax.
The “theme” here is that if you want to help a grandchild pay for college, there are ways for you to do it! The smart decision, however, is to discuss it with your tax professional and make sure you are doing it the right way.