A 45-second read by Victor Cannillo: If you want to help a relative pay for college, you can pay the money to the college directly without incurring any gift taxes. However, you need to ask the school if this would affect the need-based aid eligibility of the student because each school handles this differently. For example, if the school views the money as a payment of the student’s account, then most likely it would not affect financial aid. But if the money is treated as a resource, then it will reduce the student’s aid “dollar-for dollar.”
Depending on the age of the person you wish to gift money to, you may also consider putting your monetary gift into a 529 plan. This allows the money to grow tax-free over time. The idea behind a 529 plan is to allow the assets to grow over several years, so if they are already near or at college age, this may not be the best option. Note that 529 college savings plans owned by a grandparent, noncustodial parent or other third party are not reported on the FAFSA as an asset. The financial aid of the student could be affected when a distribution is taken, since it is treated as income.
Victor Cannillo is quoted on this topic in an article in NJMoneyHelp.com by Karin Price Mueller. If you want to learn more on this topic, FinAid.org is a good resource.
For any other questions, please contact your Baron Team.