Tax Guy: I’m getting $285,000 from my ex-spouse’s 401(k). I want to pay my children’s credit-card debt and student loans. Will I have to pay tax?

by | Nov 9, 2023 | Stock Market

Dear Tax Guy, I’m expecting to receive $285,000 in a divorce settlement from my soon-to-be ex-spouse’s 401(k). I would like to help one of our children with their $7,000 student-loan debt, and another child with their $18,000 credit-card debt.

Am I able to gift them this money without having to be taxed to death? Tax-Planning Parent Dear Parent, After the ordeal of divorce, here’s some good news: You can help your kids, but there will be taxes to be paid along the way.  In 2023, you can give gifts up to $17,000 per recipient before the gift tax applies. In 2024, the maximum per recipient increases to $18,000. The year-over-year increase happens because the gift-tax exclusion is adjusted for inflation. But let’s just suppose you already have the cash on hand. You could knock out the $7,000 in student loans for one child. You could also erase $17,000 of the $18,000 credit-card bill. In the following year, you pay off the remaining balance. Another option: If your child with the credit-card debt is married, you could give the remainder to his or her spouse, said Luis Rosa, the founder of Build a Better Financial Future in Pasadena, Calif. Or if you waited until next year, you could erase the full credit-card debt with one $18,000 gift. Children’s debts vs. retirement The bigger question is whether you ought …

Article Attribution | Read More at Article Source

Share This