College for our babysitter

[sirion]

We have employed our babysitter since I returned to work about a year ago. Our child is just about four and will be starting school full-day next year probably in January. We've been encouraging our babysitter to go to college and she seems interested. We could probably come up with some financial assistance in the form of a gift for her tuition (say $400/semester). Is this a crazy idea? Our current financial situation is as follows:

• $295k mortgage at 5.25% with 28 years remaining
• $1M in retirement assets
• Contributing max to one 401K and two Roth IRAs
• Our child's college account has $100k and we don't plan on contributing any more.

I just want to do something nice for someone who has no family members ever that have gone to college and no financial support from her family. Are there any pitfalls? This would not be a loan--just a no-strings-attached gift.

 

[Sarah in SC]

It sounds like a wonderful gift to me! How I wish someone would have done something like this for me at that age.
My only caveat would be that you should resist the impulse to check up on her beyond proof of passing grades in order to get the next semester's installment.

But that would be the only string I would have on the money--you pass, I pay, you fail, I don't. That is how it works where I work.

 

[akck]

That is such a nice thought. While there may be pitfalls, I would approach handling it by contacting the school she would attend. I'm guessing someone there would best know how it should be handled for her. If it's done properly, it could become a donation from you, but you should get your tax advisor's input.

 

[Coach]

Sirion, I think it's a lovely idea! A straight gift sounds fine, or you could offer to buy her books for each semester.

Coach

 

[mews]

I just want to do something nice for someone who has no family members ever that have gone to college and no financial support from her family. Are there any pitfalls? This would not be a loan--just a no-strings-attached gift.

Wow! What a great way to encourage someone!

Go for it -

ta,
mew

 

[73ss454]

Great! I think it will make all involved feel good.

 

[brewer12345]

I have had similar thoughts re: our baby sitter. She has been a gem with the kids, but is 20 and struggling. She will start a nursing program in the fall and end up as a bonified nurse in 2 to 3 years, but right now she is dirt poor with no health insurance. I suspect that if we paid for insurance we would be considered an employer and on the hook liability-wise, no?

 

[donheff]

It does sound like a nice gift. Our daughter's babysitter switched over to house cleaning after ten years of day care. We helped set her up with neighbors so she has clients every day of the week. Worked with them to make sure everybody contributes to SS. And we set up a 401K for her to which we add a little money every month.

 

[freebird5825]

What a wonderful idea!
An alternative thought to a cash gift...but first a short story to illustrate, if I may...
When I was a teenager, I was hired as a "mother's helper" for a family with 3 sons. The husband and wife were pursuing their Masters' degrees in evening classes. My job was to show up after school on weekdays and do laundry and water plants and some light housework for a few hours until they got home. If they were really late, I would do my own homework, off the clock, at their house.
Every Sat I would help them both clean the entire house.
This job morphed into housesitting for weeks at a time in summers along with the continued housework.
They overpaid me for the special jobs because they knew I was saving up for college.
So my point here is...can you come up with extra duties for her, at a higher pay rate than babysitting, instead of an outright cash gift?

 

[WM]

To the OP - I think a "scholarship" or paying for books is a really nice idea, and sure to be greatly appreciated. Books are really outrageous these days, so it could easily be more than $400 per semester.

I suspect that if we paid for insurance we would be considered an employer and on the hook liability-wise, no?

I don't understand what you mean about the liability. But is she eligible for student insurance of some kind through her nursing program? Could you pay the premiums for her? Or again, books. I'm sure they are quite expensive in a nursing program.

 

[kowski]

when i worked i always said give me the money and i'll spend it the way i want. just give her a raise.

 

[Texas Proud]

I think it is great to encourage someone to get more education...

I would do it like someone else said... pay up front (she does not have that much... so do it before she goes to school)... when she returns with passing grades, give her another installment... the most 'downside' you have is she takes one payment and does not go to school....


Anybody who has $1 mill or more can gain or lose $400 in a day EASY... so it is not like you will be missing it...

 

[calmloki]

Great idea! Like the idea of furthering the people you choose. A consideration: 529 plan. In Oregon, and a few other states, some portion ($2k in Oregon) of one's annual 529 contribution is state tax free. Also, in Oregon, contributions up to that $2k limit can be made up until April 15 2010 and still applied to the 2009 tax year. One then, in Oregon, requests reimbursement for monies spent on the students education.

In our case, that meant we paid for some of the nephew's tuition last fall, made a contribution to a 529 we set up in December, and just got the money back from the 529 this week. By running it through the 529 we saved about 9% Oregon tax on the amount of our contribution. Not a huge amount, but fairly simple, and what the heck, I like the idea of paying just a tad less.

Oh - also used the cash back card to pay the tuition both to create a record and to gain that 1.25% cash back.

Check your state's 529 rules.

NOT A TAX PROFESSIONAL, USE COMMENTS AT YOUR OWN RISK.

 

[CuppaJoe]

I would start it as a one time check enclosed in a nice card wishing her well in college or whatever she chooses to do. She wouldn't have to know my intentions to repeat it for every semester.

 

[sirion]

Great thoughts, everyone! We pay her $14/hour + all her taxes for the childcare she provides so she is well-paid. We only use her 4 days/week for 4 hours a day since DD is in morning pre-school at this point. I guess I could give her a raise, but then it would be a lot to taxes for her and for us. We do have money in the bank, it's true, but we are planning to retire early and we don't make much income ($94k combined per year). Our cash flow is not so great and I don't want to pull money out of investments to help her out, you know?

I would have to look into how I could set up a 529 for her. I'm in MD so the state plan isn't the greatest, but they do offer a $2,500 tax deduction for their plan. Since I'd be using the money right away, I could do a money market account or something, I suppose. I need to research that.

My plan is to see if she registers this summer (as I've been encouraging her to do). I sent her the online FAFSA form and the community college class offerings. I think that if she can complete the summer session (one or two classes) on her own, then I will assist her in the fall.

Oh, I don't want to make it a check to her because her parents apparently abscond with all her money above what she needs for expenses. I would want to write the check directly to the college.

 

[calmloki]

...
I would have to look into how I could set up a 529 for her. I'm in MD so the state plan isn't the greatest, but they do offer a $2,500 tax deduction for their plan. Since I'd be using the money right away, I could do a money market account or something, I suppose. I need to research that.
.....

Money market is what we did - they do hold funds 5 days after transfer, but big deal - in this interest climate who's gonna get antsy if they hold the bucks a couple weeks? Double check how your plan works - in our case spending the education dollars, then contributing to the plan and drawing $ back allows us to not end up with cash in the plan we can't retrieve if young nephew gets less than a B average or joins a cult instead of attending class.

 

[sirion]

The MD 529 charges $25 as an annual account fee and the money market portfolio has an expense ratio of 0.77%. Wow! I would only barely come out ahead in this case if I only wanted to contribute about $800 per year since the state deduction would only be worth about $64. If you add in the hassle of the plan and everything, I am not sure it would be worth it.

 

[Milton]

No, I don't think you are crazy for "want(ing) to do something nice for someone ...".

I would have to look into how I could set up a 529 for her. I'm in MD so the state plan isn't the greatest, but they do offer a $2,500 tax deduction for their plan. Since I'd be using the money right away, I could do a money market account or something, I suppose. I need to research that.

Sounds unnecessarily complicated to me. I would be inclined to simply give her the money.

 

[Westernskies]

If her folks are absconding with her "excess" wages, she is never going to be able to save enough to go to school- so if you want to help her achieve this goal (hers or yours?) make arrangements to pay her tuition directly, "to get her started" . Give her the opportunity to earn a few extra $ around the house to pay for her books and incidentals. Might drop a hint about how you would be willing to continue the arrangement if she continues her good work with your family and keeps up her grades.
Consider it an investment in humanity. Don't expect to be paid back, do expect a backlash from her family, and watch out for the law of unintended consequences....no good deed ever goes unpunished.

Sounds like a preat opportunity to make a difference in someone's life- keep us posted on how this unfolds.