financing college for a grandchild

2sweetpeaMarch 15, 2007

We want to help defray some of my DGD's expenses for college. She has some grants and her parents can pay some too but we would like to see her avoid hugh a student loan bill upon graduation. Are there any ways to claim any sort of deduction? Setting up some sort of trust?

Pam

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dave_donhoff

Hi Pam,

We want to help defray some of my DGD's expenses for college. She has some grants and her parents can pay some too but we would like to see her avoid hugh a student loan bill upon graduation. Are there any ways to claim any sort of deduction? Setting up some sort of trust?

Yes, there are absolutely ways to strategically set aside funds for DGD's future education. You want to do so, however, keeping in mind both tax issues, and avoiding accidentally eliminating her future ability to qualify for other grants or very-low interest loans.

There are Financial Planners that specialize in college funding planning. I recommend checking out the NAPFA (http://www.napfa.org/) for local references.

Luck!
Dave Donhoff
Strategic Equity & Mortgage Planner

Here is a link that might be useful: National Association of Personal Financial Advisors

    Bookmark   March 15, 2007 at 5:09PM
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2sweetpea

Thanks Dave!
I guess I should have clarified the fact that my DGD starts college this Sept. Costs won't be too great if she attends her choice in state(CA) where she has been accepted, but she is not making her final decision until she hears from her out of state choice, they will notify her in April. She does have grants lined up, but they don't begin to cover outstate expenses.
Pam

    Bookmark   March 15, 2007 at 5:45PM
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dave_donhoff

Hi Pam,
OK... then the following is simple advice (I always suggest double checking with your tax & estate advisors as well as with college funding planners... there are still devils in the details.)

You could directly "lend" DGD any funds needed. If these are not GIFTED, then they aren't income to her and don't accidentally disqualify her from subsidies you and your kids have paid taxes for all along. AFTER graduation, you may "forgive" her of a chunk of that debt annually, within the tax-free gifting guidelines.

Alternatively, you have a $12,000 annual tax-free gift exemption as a tool. If your spouse is still with you, you both have a seperate $12,000 exemption. You could go as far as each of you gifting $12k to DD, DS, and DGD ($36,000 annually from you and grampa, each.) CAREFUL THOUGH... although doing so can be tax free to you and them, it would also then show as income to DGD, and increased net assets to DD & DS, which all goes into the qualification formulas for the student aid (which again, you've been paying for all along for years & years. I have no qualms about reclaiming the benefits that have been paid for in past premiums.)

Hope that helps,
Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   March 16, 2007 at 12:39PM
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housenewbie

What if she just pays a certain bill directly? Such as housing, or whatever? Would that be considered 'income' for DGD?

    Bookmark   March 16, 2007 at 12:50PM
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dave_donhoff

Hi housenewbie,

Good Q! Just "that much more" than I know, in terms of implications to taxes and/or qualifications for student aid.

Thus my weasel-deferral; Check with a college funding pro ;~)

Cheers,
Dave

    Bookmark   March 16, 2007 at 1:40PM
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momtokai

There may be a way to roll over currently invested money into the 529 Plan and not pay taxes on the earnings. I am just throwing ideas that I have NO knowledge in. Again, you NEED to ask someone with the expertise.

For example if you have 10k in the stocks and its cost basis is 1k, you would had to pay capital gains on 9k if the stocks are sold to pay for tuition. With money in the 529 plan, that 9k is not taxed if used for education. Generally, that money needed to be ear marked for college education from the beginning. What I do not know is if you can rollover the funds after the fact and take advantage of the plan. If you find out let ME know....

    Bookmark   March 16, 2007 at 2:01PM
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