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Understanding Direct Payments

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™

Medical care and tuition payments are either direct payments to a health care provider for the medical care of another person; or direct payments of tuition to an educational institution for another person and are not transfers for gift tax purposes.   

For instance, parents may pay all the college tuition for their grandchildren free of gift tax.  This is limited to tuition, so room and board and other personal expenses are not included. 

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result?

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Linguistics: www.HealthDictionarySeries.com

Filed under: Funding Basics | Tagged: Educational Content | 1 Comment »

Understanding Funding Options

[By Lawrence E. Howes; CFP™]
[By Joel B. Javer; CFP™]

Internal Revenue Code Section 529 Plans are for college education funding.  

These plans allow assets to grow tax-free if the money is used to pay for qualified higher education expenses.  Costs include tuition, room and board, books, and some miscellaneous expenses. 

But, there are penalties if the money is not used for qualified higher education expenses. 

State Pre-Paid Plans 

Some states have what they call pre-paid tuition plans and they vary dramatically from state to state.

Contributions qualify for the $12,000 annual exclusion and the annual gift of $12,000 may be aggregated – X5 years – into one payment of $60,000.   

Assessment 

However, the right to use the $12,000 gift is eliminated for the subsequent four years. 

The maximum amount per beneficiary was $235,000 until recently. The account may be structured so that the proceeds will be part of the child’s estate versus the UTMA where the account is included in the custodian’s estate. 

Some states permit contributions to be income tax deductible.

Conclusion

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Filed under: Funding Basics | Tagged: Educational Content | 7 Comments »