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Gifting Strategies with 529 Plans Thumbnail

Gifting Strategies with 529 Plans

529 Plans: The gift that keeps on giving

Parents and relatives can benefit from two advanced gifting strategies available with 529 plans: annual gifting and accelerated gifting. 

ANNUAL GIFTING allows each donor an annual gift tax exclusion of up to $15,000 per recipient ($30,000 per recipient for married couples). Accelerated gifting allows a larger gift to a 529 plan of up to $75,000 per recipient for individual donors ($150,000 for married couple donors) to be contributed all at once but prorated over five years for federal gift tax purposes. This can be used for large contributions without incurring federal gift tax or using the donor’s lifetime gift tax exclusion. 

With a 529 plan, the account owner also maintains control of the account assets, even though contributions are considered completed gifts and are excluded from the account owner’s taxable estate. Please note that for accelerated gifting elections the donor must survive to the fifth calendar year or a prorated amount will be included in their estate. 

GIFTING 101 Meet the Johnston family. They hope their only child, Matt, will attend university when he graduates high school. They made modest contributions to a 529 plan for him in prior years but know they need to do more to meet their savings goal to ensure that Matt has enough resources to choose any school that accepts him. At the end of 2018, Mr. Johnston earns a large bonus, and he and his wife want to contribute $30,000 of it to Matt. In a 529 plan, they can do this without any gift tax liability by using both of their annual gift tax exclusions and consenting to gift-splitting. 

Year 2019             Total gift = $30,000         Annual gift tax exclusion $30,000

ADVANCED GIFTING 

Matt’s grandparents are comfortably retired and in a position to make meaningful contributions to a college savings plan for their grandson. To maximize the five-year forward gifting provision and the special gift tax exclusions available with 529 plans, they contribute $30,000 at the end of 2019, and in 2020 they contribute $150,000 as a gift and elect to prorate over five years. Taking these steps effectively removes $180,000 from their combined taxable estate without incurring any federal gift tax or using their lifetime gift tax exclusions. 

Year
Grandparents’ giftYear-by-year gift tax exclusion
2019  $30,000 $30,000 
2020Gifting Year    $150,000$30,000 
2021Gifting Year +1    
$30,000 
2022Gifting Year +2    
$30,000 
2023 Gifting year +3    
$30,000 
2024Gifting year +4       
$30,000 


ACCELERATED GIFTING 

529 accounts can be opened for as many beneficiaries as you wish. For example, Matt’s neighbors have five kids. Suppose the children’s maternal grandparents want to contribute to college savings accounts for each of their five grandchildren: ages 8, 6, 4, 3 and 1. They can open five 529 accounts and then take advantage of accelerated annual gifting to maximize the amount contributed to each child and reduce their total taxable estate by $750,000. 

Age 8   Age 6  Age 4  Age 3 Age 1Total gifts 
$150,000$150,000 $150,000 $150,000 $150,000 $750,000 


Learn more about college savings planning with a 529 plan

contact Gigi Maxfield or Elizabeth Loda at 843.681.7526.

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