Does NJ give tax relief to pay off student loans?
Q. I am 75 years old. I withdrew $ 109,000 from my rolling IRA to pay off student loans for my two granddaughters. Does New Jersey offer a credit to offset New Jersey taxes? Looks like I’ll have to give Uncle Sam some money.
– Grand parent
A. First, your granddaughters are fortunate to have such a generous grandparent.
But unfortunately New Jersey does not offer any type of credit to pay off a student loan, so you will be paying Uncle Sam and the state the corresponding income taxes.
Since you gave each granddaughter more than the exclusion of annual gifts of $ 15,000 per person per year, you will also need to tax return prepared, said Michael Maye, a chartered financial planner and certified public accountant at MJM Financial in Gillette.
Married people can each donate $ 15,000, so if they do what’s called a “fractional gift,” the annual donation exclusion amount is $ 30,000, he said.
“The good news is that you probably won’t owe any gift tax when filing, but it will lower your unified credit which for 2021 is $ 11.7 million per person, ”he said. “The unified credit and federal estate exemption is a shared cap of $ 11.7 million, which means that using unified credit during your lifetime reduces the federal estate exemption when you die.”
There are other things to consider at any time in the future when you are withdrawing from an IRA.
Withdrawals are considered ordinary income, which means that they can not only result in income taxes but also increase Medicare Part B and D premiums and an impact on the taxation of Social Security income, Maye said.
“So to fund future goals or expenses, if you had after-tax dollars, it might have made sense to fund them from that set of after-tax assets or at least part of it.” ci, ”Maye said.
In addition, with regard to gifts, certain gifts are authorized in addition to the annual exclusion of $ 15,000.
“For example, the tax code allows anyone to pay the tuition amount directly to a college without being subject to gift tax rules,” he said. “In addition, gifts paid for medical expenses paid directly to the health care provider are not subject to gift taxes.”
You did not say how much of your retirement assets were used for this generous gift.
You need to make sure you’ve left enough assets to fund your remaining years, which could be 20 years if you’re healthy, Maye said.
He said you should consider seeing an advisor who can discuss future planning and tax implications.
Send your questions to [email protected].
Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Register for NJMoneyHelp.comof weekly electronic newsletter.