Since my son’s college fund is depleted, can I gift the money to him or his school to pay for tuition?

by Christopher C. Humes, CPA | Sep 12, 2018

My son’s college fund is now depleted, and we have one year left to pay. How does it work if I wanted to gift the money to either my son or the school to pay for tuition?

You stated that your son’s college fund is depleted and that you have a year left to go to get him through school. I assume that you were using a Section 529 account that you had contributed to over the years to save for his college expenses. Or, perhaps, he saved money from jobs while growing up, and placed the funds into a designated account for this purpose. With a year of expenses left to pay, you need not worry about making a “gift” to either him or the school to pay these expenses. You can directly pay his expenses when the bill comes due, assuming your son is an eligible dependent, and you need not worry about gift taxes when paying these expenses.  

A more tax-efficient way to handle these expenses would be to contribute to a Section 529 plan before the tuition bill comes due. Doing so will give a tax deduction on your Pennsylvania state taxes of up to $15,000 per year. If you are married and your spouse has more than $15,000 of income, he or she also can make a contribution to the Section 529 plan.   

You can then make a withdrawal from the account to pay eligible college expenses. You will obviously want to weigh the amount that you contribute with the amount of the eligible college expenses. By using a Section 529 account, you can potentially save up to $921 in Pennsylvania income taxes. Contributions to Section 529 plans are not deductible against federal income taxes.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Christopher C. Humes, CPA, is with Baker Tilly Virchow Krause LLP in Wormleysburg, Pa.

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