When considering aiding an adult child with their student loan debt, many parents wonder if there are tax benefits involved. A recent query on Suze Orman's podcast, "Women & Money," explored this topic through a listener's question. Marlene, aged 75, sought advice on whether gifting her 50-year-old son $17,000 for his loans would yield a tax deduction. Orman clarified that while such gifts fall under the IRS annual gift tax exclusion, they do not provide any tax advantages to the giver. The alternative options discussed involve charitable contributions or rethinking financial assistance altogether.
Orman emphasized separating financial goals from tax implications and urged thoughtful consideration of the impact of financial aid on the recipient's long-term well-being.
Understanding Gift Tax Exclusions and Their Limits
According to IRS guidelines, individuals can present monetary gifts up to a certain limit annually without incurring gift taxes. In 2024, this amount stands at $18,000 per person, increasing to $19,000 in 2025. However, these gifts, though tax-free for both parties, do not reduce the giver’s taxable income as charitable donations might. Even when directed toward student loans, such funds remain classified as personal gifts by the IRS, offering no tax deductions regardless of intent.
While gifting money to family members is a generous gesture, understanding its limitations is crucial. The IRS treats these transactions as personal gifts rather than deductible expenses. For instance, even if the funds directly address student loan payments, they do not qualify for tax relief. This distinction arises because the IRS views such contributions as familial support rather than official charitable activities. Consequently, those seeking tax benefits must explore other avenues, such as donating to qualified non-profits focused on educational debt relief. However, these donations typically do not assist specific individuals like one's own children, highlighting the need for clear financial planning.
Evaluating the Impact of Financial Assistance
Suze Orman advises potential givers to assess the broader implications of their financial support beyond immediate tax considerations. She encourages reflecting on how such help aligns with long-term family financial health. While assisting with student loans may alleviate short-term stress, it is essential to ensure that the aid fosters responsible financial behavior rather than enabling dependency.
Orman suggests evaluating whether providing financial assistance genuinely addresses underlying issues or merely postpones them. She highlights the importance of open communication between family members about expectations and outcomes. For example, Marlene should consider whether paying off her son’s student loans will empower him financially or perpetuate unsustainable habits. Additionally, Orman reminds listeners that personal truth and comfort play significant roles in making such decisions. Ultimately, while gifting within IRS limits remains a viable option, its effectiveness hinges on thoughtful evaluation of its purpose and impact. By prioritizing meaningful financial support over potential tax breaks, families can build stronger foundations for future prosperity.