Start spending cash????

[theunc31]

Advertisement - Members don't see this ad

Ok, so I'm a Junior in college now and will be applying for 2006. Throughout my pre-med years I've been working 15-20 hours a week and have been getting paid fairly well for it (well, for someone with a hs diploma). Anyways, those who have been accepted (congrats) have been talking about FAFSA relatively frequently and I happen to not know a whole lot about it. Like everyone else, I would enjoy some help. Is there any sort of $ amount that should not be accumulated? Should I start spending some dough? Any help would be greatly appreciated!!!

Thanks,
the unc

 

[Dr Turninkoff]

Ok, so I'm a Junior in college now and will be applying for 2006. Throughout my pre-med years I've been working 15-20 hours a week and have been getting paid fairly well for it (well, for someone with a hs diploma). Anyways, those who have been accepted (congrats) have been talking about FAFSA relatively frequently and I happen to not know a whole lot about it. Like everyone else, I would enjoy some help. Is there any sort of $ amount that should not be accumulated? Should I start spending some dough? Any help would be greatly appreciated!!!

Thanks,
the unc

you can give up to 11k per year tax free. if you have trustworthy siblings, you can give them the money and it wont show up on fafsa. the next best thing is to give it to your parents. they (fafsa) will include a percentage of it, but it won't be as high as if it were in your name. so if you have more than 11k, give 11k this year, then give whatever is left after jan. 1st next year before you file your fafsa. if you don't know anything about stocks, have your siblings/parents put the money in a vanguard index fund. this will match the returns on the s&p 500 and you won't have to monitor it. i suggest using ameritrade. if you can get by just on stafford loans, it will be better to borrow all you can at the low interest rates and not use the money in in your investment account as it will be earning more interest than you are paying on your unsubsidized staffords. just my non-cpa advice.

 

[ZappBrannigan]

I'll be filling out the fafsa this year and have over 11,000 saved up. Would it be too late to transfer some of this money to someone else? I was thinking of writing a check (though probably not in the amount of 11,000) to my fiance to set up a wedding fund in his name.

 

[Dr Turninkoff]

I'll be filling out the fafsa this year and have over 11,000 saved up. Would it be too late to transfer some of this money to someone else? I was thinking of writing a check (though probably not in the amount of 11,000) to my fiance to set up a wedding fund in his name.

check with an accountant first, but i would write a check soon and date it from the last week in december for appx. half of the amount, then write another one currently dated for the rest, assuming the total amt. isn't more than 22k. if you go to www.irs.gov and do a search for gifting, you can find out the specifics. (though obviously it won't tell you to date a check from last year) you can give someone more than 11k, but you have to report it on your taxes, thus making it liable for taxation. once you're married, i don't think you have to report parental data, but you do have to report your spouse's info, so i don't know how effective it would be to put the money in your spouse's name. good luck.

 

[Dr Turninkoff]

I'll be filling out the fafsa this year and have over 11,000 saved up. Would it be too late to transfer some of this money to someone else? I was thinking of writing a check (though probably not in the amount of 11,000) to my fiance to set up a wedding fund in his name.

and no, it's not too late, so long as it is before you file your fafsa.

 

[CaMD]

So after you give someone the $, when can you take it back again? Right after you click the submit button? Or do you need to wait a few months so they can audit you or anything?

 

[Law2Doc]

So after you give someone the $, when can you take it back again? Right after you click the submit button? Or do you need to wait a few months so they can audit you or anything?

If you make a gift to someone of cash and they make a gift back to you in the same year, you have not made a gift for purposes of the federal gift tax, and the funds continue to be your property. Additionally if you make a gift but continue to have a right to the property, or an expectation to get it back at a later date you have not made a gift. If you are not making a true gift you will be committing fraud, both for tax purposes, and for financial aid form purposes. It better be really really worth it as the downside is pretty significant...

 

[CaMD]

If you make a gift to someone of cash and they make a gift back to you in the same year, you have not made a gift for purposes of the federal gift tax, and the funds continue to be your property. Additionally if you make a gift but continue to have a right to the property, or an expectation to get it back at a later date you have not made a gift. If you are not making a true gift you will be committing fraud, both for tax purposes, and for financial aid form purposes. It better be really really worth it as the downside is pretty significant...

Good to know. Thanks for the input. I know nothing about anything financial.

 

[Ross434]

Dont give the money to a sibling, as another poster suggested. Instead, keep it in a swiss account, and simply neglect to report it.

 

[her34]

you have to consider if this is worth it.

from my understanding, by doing these things to hide your assets, at most you will receive $8500 in subsidized loans ($30k unsub + $8.5k sub=$38.5k). at worst, you will get $38.5k unsub. you will not get less loans either way. you only save on interest. so if you calculate the interest saved at current rate for $8.5k, it's about a thousand dollars.

sounds like some people have $10k-$20k. you have that much and will do questionable maneuvers to save a thousand dollars? especially considering that you will already be ~120k in debt, and down the road making most likely more than $100k/year? is it worth it?

 

[Dr Turninkoff]

you have to consider if this is worth it.

from my understanding, by doing these things to hide your assets, at most you will receive $8500 in subsidized loans ($30k unsub + $8.5k sub=$38.5k). at worst, you will get $38.5k unsub. you will not get less loans either way. you only save on interest. so if you calculate the interest saved at current rate for $8.5k, it's about a thousand dollars.

sounds like some people have $10k-$20k. you have that much and will do questionable maneuvers to save a thousand dollars? especially considering that you will already be ~120k in debt, and down the road making most likely more than $100k/year? is it worth it?

if you are doing something legal with your money to save a $1000 dollars, it is worth it, and the savings is more than 1k. there is nothing illegal about your sibling regifting you 11k 5 years down the road. it's your money and you can do what you want with it, especially if it's 11k or less and won't be reported on your taxes. also, that 8.5k turns into 30k over 4 years. most private schools will run over 38.5k in total expenses, so that extra money you have saved up will let you pay off your high interest private loans early on. to whoever said it was illegal to gift money and then have it regifted later on, where did you get your information?

 

[Dr Turninkoff]

If you make a gift to someone of cash and they make a gift back to you in the same year, you have not made a gift for purposes of the federal gift tax, and the funds continue to be your property. Additionally if you make a gift but continue to have a right to the property, or an expectation to get it back at a later date you have not made a gift. If you are not making a true gift you will be committing fraud, both for tax purposes, and for financial aid form purposes. It better be really really worth it as the downside is pretty significant...

"If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift."

this is straight from the horse's mouth. (the horse being the irs) consider it a 4-year interest free loan to your sibling.

http://www.irs.gov/newsroom/article/0,,id=107815,00.html

don't let the haters scare you guys off. protect your money.

 

[Law2Doc]

if you are doing something legal with your money to save a $1000 dollars, it is worth it, and the savings is more than 1k. there is nothing illegal about your sibling regifting you 11k 5 years down the road. it's your money and you can do what you want with it, especially if it's 11k or less and won't be reported on your taxes. also, that 8.5k turns into 30k over 4 years. most private schools will run over 38.5k in total expenses, so that extra money you have saved up will let you pay off your high interest private loans early on. to whoever said it was illegal to gift money and then have it regifted later on, where did you get your information?

If you have a plan before you start to gift to get the money back down the road, or continue to have any right to or control over the money then it is not a true gift. Check the US tax code. The gifting provisions were set up to allow people to legally move a set amount of money out of their estate per donee before they die, to limit the impact on the estate tax (a double taxing provision), not to move it out for a bit and park it, only to have it come back into one's possession. And if you give away money under such a "plan" to get it back, and then sign a tax of financial aid form saying you have less than you really have a right or expectation to, then you are committing fraud. May be hard to prove you had such a plan, but it's fraud nonetheless.
If it's a true gift, with no such expectation of getting it back, then you run the risk of your sibling not wanting to return the favor and give you any funds years later, losing half of it in his divorce, his bad investments, or to his own creditors, heirs, etc.

 

[Law2Doc]

"If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift."

this is straight from the horse's mouth. (the horse being the irs) consider it a 4-year interest free loan to your sibling.

http://www.irs.gov/newsroom/article/0,,id=107815,00.html

don't let the haters scare you guys off. protect your money.

Your cite is strange and nonresponsive to this issue -- in that cite the US tax code is telling you that if you sell something cheap, or make a sweetheart loan, that amount that is not being covered by the sales price or interest will instead be taxable under the gift tax if not covered by your exclusionary amount. Not sure how that helps you -- it is worse tax treatment to the parties involved in the transaction. And if it is a loan you are making then it would not be outside of your net worth for financial aid form purposes.

 

[Ross434]

Dude, just take it out as cash from your bank account, put it somewhere safe or in a foreign account, and then tell anyone who asks you spent it in vegas. Its really simple.

 

[Dr Turninkoff]

If you have a plan before you start to gift to get the money back down the road, or continue to have any right to or control over the money then it is not a true gift. Check the US tax code. The gifting provisions were set up to allow people to legally move a set amount of money out of their estate per donee before they die, to limit the impact on the estate tax (a double taxing provision), not to move it out for a bit and park it, only to have it come back into one's possession. And if you give away money under such a "plan" to get it back, and then sign a tax of financial aid form saying you have less than you really have a right or expectation to, then you are committing fraud. May be hard to prove you had such a plan, but it's fraud nonetheless.
If it's a true gift, with no such expectation of getting it back, then you run the risk of your sibling not wanting to return the favor and give you any funds years later, losing half of it in his divorce, his bad investments, or to his own creditors, heirs, etc.

your last paragraph is the only risk involved. if no paperwork is signed, the IRS cannot prove that you gave the money with the intention of getting it back, even if you eventually get it back. like you said, the risk is that your sibling screws you over. however, if you take that out of the question, you aren't doing anything illegal because you are legally gifting them the money. if they decide not to give it back, that's your problem. if they do give it back, there is nothing illegal about it.

 

[Law2Doc]

your last paragraph is the only risk involved. if no paperwork is signed, the IRS cannot prove that you gave the money with the intention of getting it back, even if you eventually get it back. like you said, the risk is that your sibling screws you over. however, if you take that out of the question, you aren't doing anything illegal because you are legally gifting them the money. if they decide not to give it back, that's your problem. if they do give it back, there is nothing illegal about it.

Again, if the IRS can show you had a "plan" from the onset to get the gift back down the road, then the signing of the gift tax return and financial aid form is fraud. The fact that you are making a gift shortly before filing a financial aid form claiming low net worth is some evidence the IRS can use to show this. Thus I disagree with you when you say you aren't doing anything illegal. I agree the risk of getting caught is very nominal, but the downside of criminal conviction far exceeds the upside of saving a few bucks, in my opinion. At least the patently illegal suggestion by Ross of hiding funds won't get you in "IRS" trouble -- you'd just be committing fraud on the financial aid form... Just my two cents from someone who worked in the industry...

 

[Dr Turninkoff]

signing of the gift tax return

what's this? if the gift is under 11k and the person giving it doesn't write it off on their taxes, i don't understand how the IRS would be getting defrauded?

 

[Law2Doc]

what's this? if the gift is under 11k and the person giving it doesn't write it off on their taxes, i don't understand how the IRS would be getting defrauded?

If you sign a gift tax return (which is under penalty of perjury, by the way) that says you made a gift, and in fact it wasn't (i.e. you had an arrangement to get it back later), that's illegal. Similarly, you will be committing fraud on the financial aid form if you claim you don't own such funds. But do what you want -- I tire of this...

 

[Dr Turninkoff]

If you sign a gift tax return (which is under penalty of perjury, by the way) that says you made a gift, and in fact it wasn't (i.e. you had an arrangement to get it back later), that's illegal. Similarly, you will be committing fraud on the financial aid form if you claim you don't own such funds. But do what you want -- I tire of this...

yeah, but what i'm saying is that if the gift is under 11k, you don't have to report it on your taxes. so if you don't claim it as a tax write off, how is it defrauding the IRS?

 

[Law2Doc]

yeah, but what i'm saying is that if the gift is under 11k, you don't have to report it on your taxes. so if you don't claim it as a tax write off, how is it defrauding the IRS?

My bad - I assumed you would memorialize the transaction by filing a gift tax return (which lots of people do, even when they don't exceed the exclusionary amount, to make it clear that it's not eg. a loan). So I guess you'd just be defrauding the financial aid people. Once again, I assert that it's bad advice to start out your career with a potentially criminal act. But do what you'd like...