My uncle passed away last year, and I’d like to establish a scholarship fund in his name. What steps do I need to take, and how much money do I need?
Creating a scholarship fund can be a great way to remember your uncle and help students pay for their education. You can also take a charitable deduction for the money you give to a college, community foundation or other eligible charity.
You usually need about $20,000 to $25,000 to endow a scholarship that pays out $1,000 every year. The requirements vary by organization. Some let you create a shorter-term scholarship fund with less money. San Diego State University, for example, requires $50,000 to endow a $2,000 annual scholarship, or you can commit to giving $5,000 a year over three years to finance three $5,000 scholarships for one year.
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The development office at a school or community foundation will help you set up the scholarship. You may want to focus on students who live in your uncle’s hometown or those who plan to major in his line of work or who have a certain grade point average and attend his alma mater. The organization can help you determine the type of requirements to impose without making the applicant pool too small. It may also help you create a fund even if you don’t have enough money to endow an annual scholarship. Rather than paying for college tuition, for example, your gift could pay for students to attend a study-abroad program or educational camp.
A community foundation can help you set up a scholarship that isn’t tied to a particular school – helping local students who are interested in studying engineering, for example. You can find a community foundation in your area at www.cof.org/locator (opens in new tab). Some have more experience than others with managing scholarships.
Ask what types of assets you can give and how the school or community foundation will invest the money. You can give cash, appreciated stock or other investments to create the scholarship fund. People over age 70½ can now transfer up to $100,000 tax-free from an IRA to charity every year, which counts as their required minimum distribution but isn’t included in their adjusted gross income and can be a source of money for a scholarship fund (Congress recently extended this law permanently; see 12 Valuable Tax Breaks Congress Has Brought Back to Life for more information).
Ask how the scholarship will be advertised, how the recipient will be selected and if there are any fees. Find out how involved you can be; you may be able to sit on the selection committee but not be the main decision maker, for example.
Some people who don’t have enough money to set up an endowed scholarship make contributions to a donor-advised fund for a few years and give the money to a college or community foundation to start a scholarship after their balance reaches a certain level (in that case, you get the charitable tax deduction when you give the money to the donor-advised fund rather than when you start the scholarship). See Donor-Advised Funds: Tax Break Now, Charity Later for more information.
FAQs
Does it cost a lot to start a scholarship fund? Starting a scholarship fund can cost around $10,000. The reason you'll need that amount is that this fee is considered the minimum to have an “endowed scholarship.”, which is a donation made to a college that earns interest each year.
What is the minimum amount to start a scholarship fund? ›
Does it cost a lot to start a scholarship fund? Starting a scholarship fund can cost around $10,000. The reason you'll need that amount is that this fee is considered the minimum to have an “endowed scholarship.”, which is a donation made to a college that earns interest each year.
How much money do you need to endow a scholarship? ›
Who can endow scholarships? Anyone with extra funds can endow a scholarship, though the minimum amount depends on the university. Most schools have an endowment requirement between $25,000 and $50,000.
How do I start a scholarship fund with the IRS? ›
You will need to hire a lawyer and a financial advisor, pay for website costs, and incur a number of legal fees. Working with an established scholarship management service like Bold.org is an easy solution to ensure that your scholarship fund qualifies for favorable tax treatment.
Is giving a scholarship a tax write off? ›
A key takeaway is charitable donations help those in need or support a cause and lower your income tax expense. Scholarships are amazing tax deduction donations as they not only help donors but also help students have the opportunity to pursue their educational dreams.
What are the IRS rules for scholarship programs? ›
The scholarship isn't taxable income if you satisfy all of the following conditions: You're a candidate for a degree at an eligible educational institution. You use it to pay for: tuition and fees required for enrollment or attendance at the eligible educational institution, and.
Can my business create a scholarship? ›
Anyone can establish a scholarship, or scholarship program, for higher education. Foundations, businesses, community groups and even individuals, or groups of individuals, can establish this type of scholarship program.
Do you have to report scholarships to the IRS? ›
Scholarships considered taxable income
That's because scholarship or fellowship money that represents compensation is generally taxable. The student would receive a W-2 from the school and would have to file a tax return.
Do scholarships need to be repaid? ›
Usually, the answer is no. Scholarships are a form of nonrepayable gift aid, much like many federal grants. Student loans, unlike grants and scholarships, are borrowed money that must be paid back with interest. Scholarships are considered free money because there are no expectations for repayment.
How much money is considered a full scholarship? ›
And not just tuition—a full-ride scholarship also covers your housing, meals, books, lab fees, and sometimes even living costs. In money terms, it can be worth anywhere from $20,000 to more than $50,000, depending on your school's costs.
The average scholarship for 2-year institutions is worth $6,010. On average, first-time undergraduates who receive government grants and scholarships at a 4-year college receive about $14,890 annually.
What is a good scholarship amount? ›
The average scholarship amount is $5,000 to $10,000 annually. These scholarships are typically available through the college you are planning on attending. Community partners and professional organizations offer them as well.
