Niece needs money for college

[kyounge1956]

Well, I guess it had to happen sooner or later. I got an email from one of my nieces yesterday that she needs money for college. Lucky for her, I have been buying Savings Bonds on payroll deduction for just such an eventuality.

My question is, how do I make sure my niece gets the maximum college bang per bond? I have to pay the taxes when I cash them, right? (I think I did a little research when I signed up, and IIRC at that time only parents or grandparents could cash Savings Bonds tax free for someone else's educational expenses, not aunts.) Is there a way I can transfer the bonds into her name without cashing them? If she cashed them for college costs I think they'd be tax free--at any rate I'm sure she is in a lower tax bracket than I am. The bonds are in my name (not jointly mine and niece's). The older bonds are EEs and the rest, I-bonds.

Suggestions?

 

[aaronc879]

I got an email from one of my nieces yesterday that she needs money for college... Suggestions?

Tell her to get a job.

 

[travelover]

I'm a huge fan of matching funds - to get more of the recipient's skin in the game.

Now I just wish my wife would agree, when SD calls for a cash infusion.......

 

[Sue J]

Publication 970 (2008), Tax Benefits for Education

At that link it says it can be for expenses for yourself, your spouse or your dependent for whom you can claim an exemption.

 

[kyounge1956]

Publication 970 (2008), Tax Benefits for Education

At that link it says it can be for expenses for yourself, your spouse or your dependent for whom you can claim an exemption.

Thanks for the link. I can't claim my niece as an exemption, and it may be a moot point anyway due to this other requirement:

Eligible educational institution. An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

The college she is going to is outside the US and I wouldn't be at all surprised if it doesn't qualify.

 

[superdave]

I'm a huge fan of matching funds - to get more of the recipient's skin in the game.

I could not agree more. Our kids were told from day one that we will match their college costs. They gotta have some of their skin in the game. Students contributing to their own tuition NEVER fail courses.

 

[calmloki]

We are contributing toward our nephew's education - would be much happier if he was working and using some of his own money, but... We do have a sort of stop-loss clause: if his grades aren't up to a certain standard in a semester than he has to pay for school till he gets the grades, then we kick in again.

Just saw this and it seemed somehow appropriate:

Letter Sent By College Student To His Dad

Dear Dad,

$chool i$ really great. I am making lot$ of friend$ and $tudying very
hard. With all my $tuff, I $imply can't think of anything I need, $o if you
would like, you can ju$t $end me a card, a$ I would love to hear from you.

Love,
Your $on.

--------------------------------------------------------------------------

Dear Son,

I kNOw that astroNOmy, ecoNOmics, and oceaNOgraphy are eNOugh to keep
even an hoNOr student busy. Do NOt forget that the pursuit of kNOwledge is
a NOble task, and you can never study eNOugh.

Love,
Dad

 

[kyounge1956]

Tell her to get a job.

She may already have a job, and even with the money I am planning on giving her, she will probably have to get one as it is nowhere near the amount she says she needs. Maybe I will tuck the check into the back of a copy of one of Dave Ramsey's books or similar. (Book recommendations, anybody?) If the details I have so far are any indication, she's gonna need it, bigtime.

 

[W2R]

Maybe I will tuck the check into the back of a copy of one of Dave Ramsey's books or similar. (Book recommendations, anybody?)

I started with "Personal Finance for Dummies" and I really liked it!

I have been trying to figure out how to pass it on to my daughter without getting one of those withering "Oh, MOTHER!!" looks from her.

 

[Brat]

Why is she choosing a school out of the US? If she needs with college expenses she could attend a community college in her home state, then transfer to a 4-year institution.

 

[Martha]

I think that you will end up paying the taxes on the accrued interest, even if you gift the bond rather than cash it in. IIRC, when you gift a bond it is reissued in the new owner's name and interest accrued to date is taxable to the old owner. But you are going to have to poke around to see if I am right, I can't find a link on a very quick google. You might find the answer in IRS pub 550 Publication 550 (2008), Investment Income and Expenses


I think it is cool that you want to help pay for your niece's education.

 

[kyounge1956]

Why is she choosing a school out of the US? If she needs with college expenses she could attend a community college in her home state, then transfer to a 4-year institution.

You will have to ask her why she is going there. I didn't have any influence over that decision. But she's got several years in at her current school and I don't think is in any position to transfer at this point. My sister and her husband have had some financial reverses due to the economic downturn and medical problems.

I am not going to give her a big lecture about how she should have taken all this into consideration before choosing this school, or she should have some "skin in the game" or should be willing to pay her own way. First of all, I'm in no position to do so, as my parents and my aunt paid for all of my undergraduate college. I got a small scholarship which about covered the cost of my books, and worked part time during the summers and a very little bit during the term. My financial contribution to my own college education was pretty negligible. Secondly, I am childless, so it's not as if "the shoemaker's children are going barefoot to buy Ferragamos for the niece" so to speak. The situation now is that she needs the money, and I have savings bonds which I bought precisely so if this ever happened I would be in a position to help out. I just want to know how to get the maximum benefit for her out of the bonds.

 

[kyounge1956]

I think that you will end up paying the taxes on the accrued interest, even if you gift the bond rather than cash it in. IIRC, when you gift a bond it is reissued in the new owner's name and interest accrued to date is taxable to the old owner. But you are going to have to poke around to see if I am right, I can't find a link on a very quick google. You might find the answer in IRS pub 550 Publication 550 (2008), Investment Income and Expenses


I think it is cool that you want to help pay for your niece's education.

Martha, I will check that link out later. Time to get back to work now.

 

[Sarah in SC]

It is nice that you are doing this. We have been setting aside some small sums to do the same for our niece and nephews. I hope that they will be willing to take some "life advice" from their dear old auntie along with the money!

 

[freebird5825]

Tell her to get a job.

Sorry, OP, but I'm gonna throw in a huge DITTO here.

Nice to offer to help, but I would limit it to helping with books and/or gas money at a local college that she can afford. Skin in the game is critical.
I have a college fund (not a 529) still going for my late husband's nephew who is now 6 years old. I deposited $3k in a VG account in my name when he was 1 year old. I may throw a little bit more in after I reach my own long term retirement goals.
I have intentionally not kept the parents up to date on the balance so they teach their child that there is no magic dust in the world, i.e. w*rk = rewards.
My 2 cents...

 

[Sarah in SC]

freebird, I have done likewise to keep the families in the dark. They do know they are our heirs, but fortunately think that our cars are an indicator (a bad one) of our wealth. Teehee!

 

[missionfinder]

I like what Clark Howard says....

Fully fund your retirement goals first (even if that includes ER/FI), then worry about funding someone's college because you can borrow money for college but you can't borrow money for retirement. One parent can manage to take care of 10 kids, but 10 kids seem to have a hard time taking care of one parent, so you have to cover your financial bases.

I help my daughter with college, and require her to work in order to get any funds from us, but the children of my siblings --- its their responsibility to help with their kids college funding, not mine. I don't feel its appropriate for them to see me as an out because their parents didn't do their job. The only way I'd make an exception is if their parents died without leaving anything or a disability which prevented one of the parents from working. Also, its one thing to offer the money, that can be admirable... but I would feel its a little rude for them to ask me. Just the way I feel about it.

 

[Martha]

Man, you folks are tough on the OP's niece.

Kyounge, I assume that you are not giving more than $12,000 a year (or $24,000 if you are married). If you are giving more than that you might have to do a gift tax return for the excess. There is an exemption for direct payments for tuition expenses. This exemption is allowed without regard to the relationship—so the recipient need not be a close relative or your dependent. The payments must be made directly to the educational institution. Room and board, supplies, books and other fees do not qualify.

Probably not relevant in your case but I thought that I would throw it out there.

(see my signature)

 

[Zoomie]

"Why is she choosing a school out of the US? If she needs with college expenses she could attend a community college in her home state, then transfer to a 4-year institution." A chum of mine, yes, a while back, graduated University but could not get into medical school. He went to Spain for med school, passed everything, and came back here and has been a very succesful family physician for 30 years. I recall we rescued a bunch of US med students a few years back in Grenada. Sometimes you just have to do what you have to do. Bravo to them.

 

[Brat]

I had no clue that the student was mid-program. That does put a different tone on the request. My issue with off-shore programs is that the diploma may not have status with US employers --- depending on the field. If her grades are decent and the situation not reasonably anticipated then assistance is merited. Were I in your situation I would help if I could.

 

[Martha]

I think that you will end up paying the taxes on the accrued interest, even if you gift the bond rather than cash it in. IIRC, when you gift a bond it is reissued in the new owner's name and interest accrued to date is taxable to the old owner. But you are going to have to poke around to see if I am right, I can't find a link on a very quick google. You might find the answer in IRS pub 550 Publication 550 (2008), Investment Income and Expenses


I think it is cool that you want to help pay for your niece's education.

It does look like ee bonds and I bonds are non-transferable and thus tax will be due when you cash it in or have one re-issued in your niece's name.
Individual - EE/E Savings Bonds FAQs

(see my signature)

 

[kyounge1956]

I think that you will end up paying the taxes on the accrued interest, even if you gift the bond rather than cash it in. IIRC, when you gift a bond it is reissued in the new owner's name and interest accrued to date is taxable to the old owner. (snip)

I checked that link, and that's what it looks like to me too.

Man, you folks are tough on the OP's niece.

Ain't that the truth! I have two nieces who have graduated and another one besides this one in college, and this is the first time any of them have asked me to help with college expenses, so the rest of youse can stop making those remarks that sound as if you think niece is a leech and her parents are deadbeats. Neither the nieces nor their parents make a habit of asking for handouts. This particular niece's mom is a nurse and has always been a go-getter and worked lots of OT. In fact, she works a lot harder than I ever have! My mom told me how much my sister has made some years and quite knocked me for a loop. I had no idea nursing was so lucrative! If I were making that kind of money, I might also have OK'd a daughter's wish to go to an expensive school. As has happened not infrequently, the original plan has been derailed by my sister's medical problem. Nothing life-threatening, but this has definitely put a crimp in her earning power.

Kyounge, I assume that you are not giving more than $12,000 a year (or $24,000 if you are married). If you are giving more than that you might have to do a gift tax return for the excess. There is an exemption for direct payments for tuition expenses. This exemption is allowed without regard to the relationship—so the recipient need not be a close relative or your dependent. The payments must be made directly to the educational institution. Room and board, supplies, books and other fees do not qualify.

Probably not relevant in your case but I thought that I would throw it out there.

(see my signature)

You assume correctly. It isn't $12K a year or anywhere close. Knock off one of those zeros and change "per year" into "one-time" and you will be in the right ballpark. I will look up on irs.gov about direct payment of tuition...that might be the way to go.

I was talking with my mom about this last night. It is amazing how much more expensive college is now than back in the 1970's when I was going. I graduated with a six-hundred dollar student loan outstanding, and that was only because I did an exchange year in England. I paid it off with my first job before the interest even started to accrue. My older brother, my sister (niece's mom) and I were all in college at the same time. Granted we were all going to schools in our home state, but nowadays I can't imagine people who are in the same income range as my parents (clergyman & junior high teacher) having three kids in college simultaneously, even state schools, without major borrowing.

 

[haha]

. My older brother, my sister (niece's mom) and I were all in college at the same time. Granted we were all going to schools in our home state, but nowadays I can't imagine people who are in the same income range as my parents (clergyman & junior high teacher) having three kids in college simultaneously, even state schools, without major borrowing.

I think what you say is usually true, but my sons put themselves through State U with very minor borrowing. They did have highly remunerative job skills, and they prolonged their college years by working as they went. I didn't feel that I had enough money to help them, and I also could see that though it would have been easier for them without so much work they were doing fine and they came out not wondering what to do next as they had already been doing it very successfully. My wife was in graduate school at the same time; I did largely pay for that though when we divorced she took her student loan with her and I took the credit card debt she had accumulated.

Ha

 

[Bestwifeever]

Kyounge, I think it's great that you're helping your niece. Remember no post here is not subject to our favorite hobby of giving unsolicited advice (I'm really good at that). Would you like me to tell you what she should major in?

 

[Martha]

You assume correctly. It isn't $12K a year or anywhere close. Knock off one of those zeros and change "per year" into "one-time" and you will be in the right ballpark. I will look up on irs.gov about direct payment of tuition...that might be the way to go.

Because it is less than 12,000 you don't have to worry about direct payment, just give it to her.