So D is not yet 18, and she had a custodian account before she turned 14. DH thought the best way to gift her money is to transfer appreciated stocks to her custodian account. Do you agree?
I also found out that I couldn’t open individual account for her, since she is not yet 18. What is the best way to gift cllege kids?
Why do you want to “gift” money to a college student or soon to be college student?
Will you be applying for need based aid? If so…for FAFSA purposes, student assets are assessed at 20% of value, while parent assets are assessed at 5.6% of value.
It depends on how much you want to give. If you’re only talking about 5k a year, help them start an IRA, assuming they have earned income.
IRA or Roth if she has W-2 income.
Why do you want your kiddo to be able to do with this “gift”?
Do you want it to be a liquid asset of some kind that can be used now…or do you want it to be a long term investment for your kiddo?
Agree that it depends:
How much money?
What’s the purpose?
Will you care at all how it’s spent and when?
Is child applying for need-based FAid?
Does kiddo gave a job which pays wages reported to IRS, and can thereby had any URA–Roth (preferred) or traditional?
How @responsible" is kiddo with money?
Will you be treating other kids equally? Why? Why not?
Why should this matter?
IMHO, it matters whether you treat kids similarly if you want to keep relative peace and harmony among kids, I guess.
We planned to full pay to schools and she made the decision to go to Vandy on full tuition scholarship instead. We intended to give her the difference. She’d is a very mature girl, so we know she will not spend the money unwisely. She told us she doesn’t want to manage the money yet. We thought we can used this to save in our taxes too. No, not a chance at all for need base aid for her or DS20. This will help her with med school, houses,cars in the future.
Yes, we do plan to treat DS20 the same.
Yes, she will be working after AP tests and at college to make sure she have enough earned income to put in Roth IRA. But her question is will she be able to get a job at college, wouldn’t work study kids get first dibs? DH and I got our graduate degrees here and I worked in cafeteria in the 2nd week of school, so I think there are a lot of jobs on campus. Is that true?
@SincererLove I am doing the same with D (though she is getting less than your D). I’m transferring her an account with stock upon college graduation.
She won’t be able to get a work study job…but my bet is there are on campus jobs that are funded NOT through work study.
My opinion…make this stock transfer AFTER she graduates from college. In the meantime, if you want to, you can fund a Roth IRA for her…but she has to have earnied income in the amount hat you fund.
@BelknapPoint what “tax advantage” is there for this family to transfer this money as a gift…now?
Agree that I’d wait until she graduates. A lot can transpire in 4 years for various reasons – academic bumps, health issues, family issues, social issues, etc – that can result in a transfer where you would end up paying.
It depends on what exactly is being gifted. If we’re talking investment assets that throw dividends and capital gains distributions each year, that’s potentially taxable to the asset owner. An asset that’s sold may produce income from a capital gain, and that might be a taxable event. I would be careful of gifting an asset that simply shifts the tax burden from me to the gift recipient, unless everyone knows that the gift value is potentially decreased by any tax that must be paid.
I would hold onto the money for now. Maybe she would want grad school, med school, the money can be used for that, or a house/wedding.
I would hold on to the money for now. If she decides to go to med school, they will still ask for your income and assets in order for her to get any need based aid. You can pay for med school.
Should she decide to do something else, you can help her get launched
https://www.irs.gov/taxtopics/tc553.html
Due to “kiddie tax” rules, a child’s investment income might still be taxed at the parent rate, so I don’t see an advantage of gifting these assets now.
We gifted our kids after they graduated from college. For us, there were just too many unknowns when we were paying for our kids to complete college, plus our income was barely enough to meet our monthly expenses and theirs. Once we finished paying their educational expenses we had some breathing room.
For D, the gift is being used for housing and living expenses. For S, he has used funds to grow his business and buy more inventory. He will also be using it for buying a place in the near future. You and your spouse can each gift up to $14K/year/individual without any federal gift tax consequences or having to complete any forms that you are using up some of the $5 million/giftor lifetime gift tax exclusion.
I know there are tax benefits for giving appreciated assets (especially if you’re in a high tax bracket and kiddo is in 0% tax bracket). We didn’t do that, we just gave cash. We will sit down with our CPA and talk about possible future gifts for our kids, including possibly gifting D (who is in 0% tax bracket) appreciated assets.
The advantage to giving them funds when they are young is of course there is compound interest if invested. You also can see how wisely or poorly they handle money and perhaps adjust future gifts and how they are given based on that. It’s also fun to see what they choose to spend on and help give them more options.
@mommdc @BelknapPoint how does this statement interface with the kiddie tax.
Here’s an article about gifting kids money (or assets). It does mention the “kiddie tax” towards the bottom of the article.
http://www.businessinsider.com/how-to-give-your-kids-money-2015-11/#
Well I don’t know that there is a 0% tax bracket, doesn’t it start with 10%?
But the kiddie tax requires unearned income over $2,100 I believe to be taxed at the parent’s highest marginal tax rate.
Once they are independent for taxes, over 24 if students, and having enough earned income, then the kiddie tax would no longer apply.