Retire Wise | September 2020

3 Tax-Smart Ways to Help Family Members in Need Pay for College

As colleges and universities grapple with reopening during the COVID-19 pandemic, a growing number of college students and their parents find themselves struggling to pay tuition costs. In fact, a recent study found that nearly half of all college undergraduates said they need to “figure out a new way to pay for school” due to the impact of the pandemic on their finances.¹

Fortunately, there are a number of tax-smart ways for parents and grandparents to help family members pay for college. However, before reaching into your own pocket, look into programs designed to help. These include emergency cash grants under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as well as the ability to apply for or appeal an existing federal student aid application, if financial circumstances have changed.

Remember, if you are in or nearing retirement, it’s important to find the right balance between providing assistance and maintaining your own safety net, so you’re not over-extending yourself at a time when portfolio values may be impacted by ongoing market volatility. Next, determine the right tax-smart strategy for your situation, which may include one of the following. 

1. Annual gifts: In 2020, you can give $15,000 to as many different people as you wish, under the annual gift tax exclusion ($30,000 for married couples filing joint returns), before bumping up against the lifetime gift tax exemption amount, which is $11.58 million per person ($23.16 million for married couples filing joint returns) in 2020. In certain cases, gifting can be enhanced by giving appreciated stock rather than cash. Since the gift is based on the fair market value of the asset you transfer, you don’t pay capital gains tax on the appreciation.
   
   
2. Direct payments to educational institutions: Instead of giving the money to the student, you can make a payment directly to the college or university. As long as you make the payment directly to the school, it is not considered a gift under the gift tax rules, so it won’t count toward your annual exclusion or require you to file a gift tax return. 
   
   
3. 529 plans: 529 plans offer a tax-smart way to pay for qualified college, K-12, and continuing education costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits, such as five-year gift tax averaging and tax-free qualified distributions. Some states also offer state income tax incentives, so take time to research your state’s tax treatment first. 

Consult your tax and financial professionals before implementing these or other strategies. To learn more, call the office today to schedule time to talk.

Don't Fall for Phony Contact Tracers

The pandemic has given rise to a number of new scams designed to part you from your money. One of the latest involves phony contact tracers. While contact tracing is considered an important tool for helping to contain the spread of COVID-19 in communities, the Federal Trade Commission (FTC) warns of a growing trend where scammers are pretending to be contact tracers.

How It Works

According to complaints received by the FTC, as well as a number of state and city officials throughout the country, a typical scam may unfold as follows:

• You receive a call from someone claiming to be a local public health worker, saying that you have been in close proximity to someone who tested positive for COVID-19 and that you need to self-isolate and take a test. The caller refuses to identify the person who had tested positive, citing “confidentiality”.
  
  
• The caller then requests that you provide some form of payment to cover the cost of mailing a COVID-19 test kit to you. The scammer instills a sense of urgency by claiming you must comply within a stated time period or face penalties for non-compliance.

How to Avoid the Scam

According to the FTC, legitimate contract tracers may ask you for your name, address, health information and the names of people and places you have visited. The agency says real contact tracers need health information, not money or personal financial information. The FTC offers the following tips for avoiding phony contact tracers:

1. Real contact tracers won’t ask you for money. Only scammers insist on payment by gift card, money transfer, or cryptocurrency.
   
   
2. Your immigration status doesn’t matter for contact tracing, so real tracers won’t ask. If they do, you can bet it’s a scam.
   
   
3. Contact tracing doesn’t require your bank account or credit card number. Never share account information with anybody who contacts you asking for it.
   
   
4. Legitimate contact tracers will never ask for your Social Security number. Never give any part of your Social Security number to anyone who contacts you.
   
   
5. Do not click on a link in a text or email. Doing so can download malware onto your device.

For more information about contact tracing in your area, visit your state health department’s website.

^{1 https://www.cnbc.com/2020/06/04/more-than-half-of-students-probably-cant-afford-college-due-to-covid-19.html}

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.

Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state's 529 Plan.

^{This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.}