Give Tax-Exempt Gifts Above Annual Gift Tax Exclusion

Published Wednesday, September 16, 2015 at: 7:00 AM EDT

The annual gift tax exclusion allows you to give cash or property to relatives without paying any gift tax. But you might do even better. By giving a direct gift to an educational institution or a health care provider, you can go above and beyond the annual exclusion—no questions asked!

Under the annual exclusion, there’s no gift tax liability for gifts of up to $14,000 per person in 2017, doubled to $28,000 when a spouse joins in. This tax break may be multiplied by an unlimited number of recipients. For example, if a couple has five grandchildren in college, they can give each one $28,000 this year to help pay for school—thus reducing their estate by $140,000 without estate or gift tax complications.

In addition, there are two special situations in which you can give gifts without eroding the annual gift tax exclusion:

1. Education gifts. If you pay the school directly on behalf of someone else, the gift doesn't count toward the exclusion.

2. Health care gifts. When you pay medical expenses for another person directly to a health care provider, that gift, too, is exempt from gift tax.

In our example the couple could pay tuition directly for five grandchildren totaling $140,000 in 2017 and still hand out gifts of up to $28,000 to each one without any gift tax. And you can follow this approach year after year. Coordinate these activities as part of your estate plan.

This article was written by a professional financial journalist for Preferred NY Financial Group,LLC and is not intended as legal or investment advice.

An individual retirement account (IRA) allows individuals to direct pretax incom, up to specific annual limits, toward retirements that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Tranditional IRA. Contributions to the Tranditional IRA may be tax-deductible depending on the taxpayer's income, tax-filling status and other factors. Taxed must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59%, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. None of the information in this document should be considered tax or legal advice. Please consult with your legal or tax advisor for more information concerning your individual situation.

Contributions to a Roth IRA are not tax deductible and these is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

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