25 Mar How gifts can impact college financial aid

Q. I am thinking of gifting some money to my niece and her husband who are deciding on a college for their son. Will any gift I make to them have an impact on their son’s financial aid possibilities?
— Giver

A. That’s very generous of you, and you’re smart of be concerned about any unintended consequences of your help.

If you want to help a relative pay for college, you can pay the money to the college directly without incurring any gift taxes, said Victor Cannillo, founder of Baron Financial Group in Fair Lawn.

However, he said, you need to ask the school if this would affect the need-based aid eligibility of the student because each school handles this differently.

“For example, if the school views the money as a payment of the student’s account, then most likely it would not affect financial aid,” Cannillo said. “But if the money is treated as a resource, then it will reduce the student’s aid dollar for dollar.”

Depending on the age of your great-nephew, you may also consider putting your monetary gift into a 529 plan, Cannillo said.

This would allow the money to grow tax-free over time. The idea behind a 529 plan is to allow the assets to grow over several years, so if he is already near or at college age, this may not be the best option, he said.

“Note that 529 college savings plans owned by a grandparent, noncustodial parent or other third party are not reported on the FAFSA as an asset,” Cannillo said. “The financial aid of the student could be affected when a distribution is taken since it is treated as income.”

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This story was originally published in March 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.