Paying for College

How to Set Up a Scholarship Fund

You usually need at least $20,000, but a college or community foundation will do most of the legwork.

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.

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. 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.

Most Popular

Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math
retirement planning

Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math

The math isn’t as tough as you might think. It all starts with dividing your assets into three different buckets.
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is heading back toward its March highs. What’s driving the resurgence, and will gas prices go down anytime soon?
May 23, 2022

Recommended

More to Get Student Loan Forgiveness
Paying for College

More to Get Student Loan Forgiveness

On the heels of another extension of the repayment moratorium, the Biden administration takes another step to expand debt relief.
April 20, 2022
How to Split $250,000 in Student Loans in a Divorce
Paying for College

How to Split $250,000 in Student Loans in a Divorce

Before you just sell the house and write a check to pay off your Parent PLUS loans, look at all your options. One could potentially save you a couple …
April 7, 2022
Uncoupling, Kids and Paying for College
Divorce

Uncoupling, Kids and Paying for College

Don’t let your divorce derail your child’s higher education. Follow these suggestions to negotiate a fair plan for you and your ex to work together to…
March 9, 2022
Biden Extends Suspension of Student Loan Payments
loans

Biden Extends Suspension of Student Loan Payments

The president gave borrowers another 90 days until May 1 before they have to start paying back their student loans.
December 22, 2021