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September 28, 2020

Late Game College Funding: Appreciated Assets

College Planning Taxes Videos

Welcome to Curt's Chalk Talk, the late game college funding series. I'm Curt Sheldon with C.L. Sheldon and Company, and today I'd like to talk to those of you who purchased securities to fund your child's college education.

Now let's say several years ago you bought some IBM stock for Junior to go to college, and we'll say you bought about a thousand shares at $8 per share. Well, now it's time for Junior to go to school, and you decide you're gonna sell that IBM stock to pay for it. You're gonna pay taxes on that at about 15%. But what if there is another way?

Let's say instead that you gift this IBM stock to Junior, and you can gift up to $15,000 a year to anyone that you would like with zero gift-tax ramifications. You don't even have to report it, and he doesn't report it as income, either. So you gift the stock to Junior, and then he sells it. And it's likely that he's in a 0% tax bracket for capital gains and won't have to pay any taxes on it.

Now you have to do this right because of the IRS is anything but stupid and there are limits. You can only do it with about $2,000 worth of capital gains or the taxes start going up very rapidly. So let's say you bought that thousand shares at $8 a share. Now you're going to sell it at $10 per share. You get $10,000. There's $2,000 worth of capital gains that Junior has, and he pays zero taxes on it, and you save about $300 in taxes. It's not going to make college free, but it's pretty good money for doing some paperwork.

Now, finances aren't easy, and we don't spend a lot of time on 'em when we're in the military. If you'd like some help with your transition from the active duty force to the civilian world, check out our checklist at www.clsheldon.com/college. That's www.clsheldon.com. It'll give you a lot of reminders of things you should be doing as you go through the retirement process and start your civilian career. And by the way, it's free.

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