Hi everyone. I am a long - time lurker and have appreciated the great advice I’ve read here over the years.
Short version is - what’s the best way for an aunt to pay niece’s college without being taxed out the wazoo or her losing Federal fafsa based financial aid?
Here’s the longer explanation:
(I made a new account for privacy from several family members about this.)
I have racked my brain but can’t figure out the best solution.
Niece is a jr. in high school. The $80k per year 4-yr dream college with the specialized program she wants will be about $50,000 a year (room and board) if her single mom fills out the fafsa.
(The Dad is unemployed and financially has zero to give.)
Her somewhat mentally ill (another long story) mom will do that, but not co-sign, and refuses to take out loans. They get along and niece still takes a lot of her advice and I do not want to challenge that, criticize mom, or make mom upset because that will lead to many other negative issues.
Due to not wanting to sign student loans or pay much, her mom told her to give up on her dreams and go to state school - but in niece’s situation that’s a bad idea due to her mild LD, slight mental illness issues of her own, and other reasons too long to get into here.
I did not yet reveal that I plan to pay all her tuition and expenses if she chooses not to live at home and go to her dream school/program, but I will have to tell soon because otherwise she will give up on her dreams and do what her mother suggested. Her mom will go along with my plan, since she won’t have to pay then.
I am not going to pay much if she ends up in a cheaper state school because her mom will use her for doing cleaning and chores and frankly mom can afford the lower state tuition herself.
Part of my motivation is to her my niece away from her very crazy mother more, so niece will grow more as a person with her own ideas. Of course they’ll visit a lot and that’s fine. The program niece wants is not in our area so she’d have to go a few states away to pursue that.
I have, fortunately, though years of LBYM mentality, hard work at a crappy job, plus some luck trading crypto and options, done well. So, I can afford to pay for all four years. I still have plenty left to retire. I don’t have kids either, don’t want.
I am not wealthy enough to where I’d want to pay $80k a year even though I could if I had to, but $50k is fine. However if I just pay it outright or gift it to her or the mom, she will lose that aid that takes cost down from $80k to $50k a year.
I also want to minimize taxes for myself and anyone (niece or her mom) I end up gifting it to in order for this to best work.
I only make about $50k a year now at my job, as I am semi-retired but still technically considered by my employer as working full time.
I already have $130k In her 529 plans and can cover the rest from my taxable account.
One grandparent is going to also help (insists) with a few thousand dollars she saved in a 529, but she will go along with whatever plan I decide is best for taxes and for the overall situation.
I think the best partial option is to co-sign a loan for niece then pay that off when she gets to jr or senior year.
What other good options do I have to maximize my tax savings while keeping the aid in place?
I think tax laws only allows $10k a year to be used for student loan payments if it comes from a 529. Would I need to wait til jr.college year after aid is applied for by mom, then pay jr and sr yr balance with the 529, plus $10k a year of the loans each year thereafter? How does the $10k law work with that? Is it allowed once per year or once per lifetime?
Would I need to choose a certain type loan and what kind? Just any private loan with terms I think are good? I do Have good credit, and also could use a heloc if the rate on that is lower. My home is almost paid off (2 yrs left) and rates are so low I am fine with that.
If I gave it all to the mom again she’d lose the financial aid so that won’t work, but maybe I could give it to niece after her junior yeaR? Would that help with taxes somehow if she is in a low tax bracket and has no work income?
I’ve read a lot of articles online about this and they don’t seem to offer a great solution. My niece has some learning disabilities, despite being smart, and needs to fully focus on her studies, and so working during college in her situation is not going to be good - so using a Roth IRA in her name won’t work since she has no earned income.
At one point niece was suicidal due to mental illness but she is much bettr
now and very educationally motivated. Part of the issue is her upbringing but I can’t criticize that or it would cause huge issues that would end up hurting niece.
I could gift some of the money from the 529 or taxable account (which one of those to pull from, I don’t know which is best) to her mom say $10k a year and her mom would make the loan payments I co-signed, not an issue. She’s 100% trustworthy in that way. Then I could pay $10k a year additional to her student loans from the 529.
Or I could gift some of the money to my niece (also trustworthy) each year and she could pay it off a little at a time.
I do not want to break any rules or laws. It seems there is no good way to avoid not losing part of the aid or paying taxes on the 529 which I paid tax on once already, opened long ago so that i wouldn’t have to pay earnings taxes. The 529 has a good amount of tax free earnings built from the original money I put in.
Short version is - what’s the best way for an aunt to pay niece’s college without being taxed out the wazoo or her losing Federal fafsa based financial aid?
Here’s the longer explanation:
(I made a new account for privacy from several family members about this.)
I have racked my brain but can’t figure out the best solution.
Niece is a jr. in high school. The $80k per year 4-yr dream college with the specialized program she wants will be about $50,000 a year (room and board) if her single mom fills out the fafsa.
(The Dad is unemployed and financially has zero to give.)
Her somewhat mentally ill (another long story) mom will do that, but not co-sign, and refuses to take out loans. They get along and niece still takes a lot of her advice and I do not want to challenge that, criticize mom, or make mom upset because that will lead to many other negative issues.
Due to not wanting to sign student loans or pay much, her mom told her to give up on her dreams and go to state school - but in niece’s situation that’s a bad idea due to her mild LD, slight mental illness issues of her own, and other reasons too long to get into here.
I did not yet reveal that I plan to pay all her tuition and expenses if she chooses not to live at home and go to her dream school/program, but I will have to tell soon because otherwise she will give up on her dreams and do what her mother suggested. Her mom will go along with my plan, since she won’t have to pay then.
I am not going to pay much if she ends up in a cheaper state school because her mom will use her for doing cleaning and chores and frankly mom can afford the lower state tuition herself.
Part of my motivation is to her my niece away from her very crazy mother more, so niece will grow more as a person with her own ideas. Of course they’ll visit a lot and that’s fine. The program niece wants is not in our area so she’d have to go a few states away to pursue that.
I have, fortunately, though years of LBYM mentality, hard work at a crappy job, plus some luck trading crypto and options, done well. So, I can afford to pay for all four years. I still have plenty left to retire. I don’t have kids either, don’t want.
I am not wealthy enough to where I’d want to pay $80k a year even though I could if I had to, but $50k is fine. However if I just pay it outright or gift it to her or the mom, she will lose that aid that takes cost down from $80k to $50k a year.
I also want to minimize taxes for myself and anyone (niece or her mom) I end up gifting it to in order for this to best work.
I only make about $50k a year now at my job, as I am semi-retired but still technically considered by my employer as working full time.
I already have $130k In her 529 plans and can cover the rest from my taxable account.
One grandparent is going to also help (insists) with a few thousand dollars she saved in a 529, but she will go along with whatever plan I decide is best for taxes and for the overall situation.
I think the best partial option is to co-sign a loan for niece then pay that off when she gets to jr or senior year.
What other good options do I have to maximize my tax savings while keeping the aid in place?
I think tax laws only allows $10k a year to be used for student loan payments if it comes from a 529. Would I need to wait til jr.college year after aid is applied for by mom, then pay jr and sr yr balance with the 529, plus $10k a year of the loans each year thereafter? How does the $10k law work with that? Is it allowed once per year or once per lifetime?
Would I need to choose a certain type loan and what kind? Just any private loan with terms I think are good? I do Have good credit, and also could use a heloc if the rate on that is lower. My home is almost paid off (2 yrs left) and rates are so low I am fine with that.
If I gave it all to the mom again she’d lose the financial aid so that won’t work, but maybe I could give it to niece after her junior yeaR? Would that help with taxes somehow if she is in a low tax bracket and has no work income?
I’ve read a lot of articles online about this and they don’t seem to offer a great solution. My niece has some learning disabilities, despite being smart, and needs to fully focus on her studies, and so working during college in her situation is not going to be good - so using a Roth IRA in her name won’t work since she has no earned income.
At one point niece was suicidal due to mental illness but she is much bettr
now and very educationally motivated. Part of the issue is her upbringing but I can’t criticize that or it would cause huge issues that would end up hurting niece.
I could gift some of the money from the 529 or taxable account (which one of those to pull from, I don’t know which is best) to her mom say $10k a year and her mom would make the loan payments I co-signed, not an issue. She’s 100% trustworthy in that way. Then I could pay $10k a year additional to her student loans from the 529.
Or I could gift some of the money to my niece (also trustworthy) each year and she could pay it off a little at a time.
I do not want to break any rules or laws. It seems there is no good way to avoid not losing part of the aid or paying taxes on the 529 which I paid tax on once already, opened long ago so that i wouldn’t have to pay earnings taxes. The 529 has a good amount of tax free earnings built from the original money I put in.
