Monday, May 12, 2014
While gifting to charities is popular, it can be equally rewarding to gift to family members. Below are effective wealth transfer techniques that may reduce or avoid taxes:
- Annual Gift Exclusion. $14,000 can be gifted to any individual sans reporting or paperwork. You are able to gift more than this to one person by filing a Gift Tax Return. Amounts given over $14,000 begin to reduce the amount you can leave tax-free at death.
- Create a Roth IRA. A Roth IRA allows a limited tax reduction on a specific amount of savings for retirement. Here, the tax break is granted on the money withdrawn from the plan during retirement.
- Directly Pay College Tuition or Medical Bills. These are exceptions to the annual gifting limit; thus, if you pay medical expenses or college tuition directly to the provider, the $14,000 limit does not apply.
- Gift Appreciated Assets to Lower Tax Brackets. It is important to beware of the ‘Kiddie Tax,’ which is imposed on unearned income earned by children under 19 years of age and college students under 24.
- State Income Deduction for 529 Plan. If you contribute to a 529 plan allows investors within the state to receive significant state tax advantages and other benefits including matching grant and scholarship opportunities, protection from creditors, and exemption from state financial aid calculations.
See Michael Helveston, 5 Family Gifting Strategies, Forbes, May 8, 2014.