<p>My mom would like to help pay DS's college costs, hopefully without getting involved in the gift tax limits. The law says that the exclusion applies to tuition payments made directly to the educational institution but we are using one of the tuition management companies that pays the school then bills us monthly. Would that fall under the exclusion, or is there no wiggle room on the rules? </p>
<p>I guess in a way we're actually repaying a loan even though it's not called a loan and there's no interest. It's too late to change our TMS obligation for first semester but we could still change the second semester to leave out part or all of the tuition. (DS does not receive need-based scholarship so we don't have to be concerned with the effect on FAFSA).</p>
<p>I was going to suggest you PM Taxguy or swimcatsmom, who are the financial guru’s here on CC, but Tom1944 may have come up with a great solution. The only problem might be that your Son has to pay taxes , if his gifts exceed a certain amount/year[ I want to say 12,000/year??] I could be wrong about this though.</p>
<p>Thanks, the idea is to avoid being involved in the $13,000 (or whatever) limit for tax free gifts - from the doner’s end; don’t think the donee has to be concerned at all. Gifting us gets involved in that limit; paying direct tuition does not. So the issue is how to pay more than 3x$13,000 (to DH, DS, and me) although I’m encouraging Mom to take a cruise and spend the money on herself!</p>
<p>Generally , there are several rules at play here.</p>
<p>First, if the tuition is given directly to the university as payment of tuition, there is no gift tax annual limit. Thus, a grandparent or parent can pay for all four years of tuition without a gift tax problem.</p>
<p>As you noted, what happens if you pay an intermediary for the university? Honestly, I don’t know off the top of my head and would be surprised if there was anything on point. I do know that payments to qualified tuition plays, such as 529 plans , generally are subject to the yearly gift tax annual exclusion discussed below that will allow a total contribution of normally up to five times that average annual tution for a private school. Check with a financial firm about contributions to section 529 plans.</p>
<p>This leads us to the general gift tax annual exclusion rule. If you are married, you can give each kid ( or any donee) up to $26,000 per year with no gift tax because there is an annual exclusion of that amount. A single parent would only be able to give up to $13,000 per donee per year.</p>
<p>In addition, you would also be able to use a $1,000,000 lifetime exclusion, which is above and beyond the annual gift tax yearly exclusions to offset any potential gifts above the annual exclusion.</p>
<p>As for using an intermediary, I would check with a good accounting firm or tax firm and have them issue you an opinion.</p>
<p>Is your mom married? She and her husband have a total exclusion of $26,000 for 2009. </p>
<p>If not, have her put the money in a grandparent-owned 529 plan for the benefit of your child. 529 plans allow an acceleration of five years’ worth of gifts (totaling $65,000) as long as certain conditions are met. Then every month, withdraw from the 529 the amount equal to your monthly payment to the TMS company. If your mom lives in a state that gives tax credits for 529 contributions, she might even get a benefit for her generosity.</p>
<p>We use Tuition Management. You say it’s too late to “get out” of your agreement with them…but you CAN adjust the amount you are contributing through them. You could reduce your Tuition Management account to a minimum…then your mom could send the rest of the college money directly TO the college.</p>
<p>cash, at least for walkaround money.
cash for interview suit.
cash for airline ticket for interview.
cash for cell phone.
cash to pay for dorm/ultility damage charges
cash for dates (gma buys the right to approval of future relative).</p>
<p>cash for christmas
cash for birthday
cash for student day
cash for graduation day</p>
<p>get the idea?</p>
<p>I have no idea but grandma gives DS $100/mn during his college days, and all I did was to turn it around and bought necessary grandma items that she wouldn’t buy.
:)</p>
<p>Thanks Taxguy, that’s what I was checking on - wasn’t sure if there was some kind of ruling on an intermediary that I couldn’t track down. I may call TMS tomorrow and see if they have ever been asked about the situation. I did find some convuluted ruling involving prepaid tuition and if that could be excluded but nothing about companies like TMS.</p>
<p>Thumper - it’s too late for the first semester with TMS since they’ve already paid the university for the tuition, but I can still adjust the second semester so that everything except tuition goes through TMS and tuition is billed directly. Then Mom just sends a check made out to the university and ta-da!</p>
<p>It may be a moot point - I’ll have to go back over the 2009 records and see what has already been sent to DH and me vs DS - may not even need to worry. DS is a senior so (fingers crossed) he will not need tuition after the second semester is paid. Mom is feeling generous but should spend the money on herself.</p>
<p>OP:
CMU does not care where the money comes from. DS first year we overpaid the school between the PLUS, Stafford, scholarships, merit, 529, and personal funds. DS was refunded the excess money, we resent the funds which was again refunded to DS. We eventually put the money into that current year 529.</p>
<p>The gist is that even if you are on TMS and grandma pays CMU for this fall’s term and again for spring term, your son will get a refund of the excess. You should confirm this proposition.</p>
<p>I wouldn’t risk paying through the service. Paying the univerity directly is the only certain way to avoid gift taxability (and generation-skipping taxability) altogether. What’s more, it isn’t immediately clear to me that a payment to the service would qualify for the $13,000 annual exclusion, which generally has to be immediately available to the recipient without restrictions in order to count. Not that there would necessarily be an immediate tax bill, but a grandparent who is rich enough to make a significant contribution to tuition probably ought to be worrying about ultimately having to pay estate tax and/or generation-skipping tax, so making gifts that count against the exemption could wind up being expensive down the line. College tuition is an opportunity to escape the gift/estate tax base altogether, and that’s valuable enough to turn square corners and do it right.</p>