How does the annual gift tax exclusion apply to contributions to a 529 plan?
Answer
All contributions to 529 plans are considered present interest gifts and qualify for the annual federal gift tax exclusion. This means that you can contribute up to $12,000 per year, per beneficiary without incurring federal gift tax. So, if you contribute $13,000 to your son's 529 plan in a given year, for example, you'd ordinarily apply this gift against your $12,000 annual gift tax exclusion. The remaining $1,000 would be a taxable gift and you'd report it on a federal gift tax return.
However, you can elect to treat large contributions (up to $60,000 in a given year) as if made evenly over a five-year period. You make this election on your federal gift tax return (which you must file if your gift is over $12,000). For example, if you make a $60,000 contribution and make the election, your contribution will be treated as if you'd made a $12,000 gift for each of five years.
Although your gifts over $12,000 in a year are taxable gifts, you may not actually write a check for the tax. Remember that you must use up your $1 million applicable exclusion amount before you'd be liable for an out-of-pocket payment for the gift tax.
GE 37945 (03/07)
If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan.
529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal.
Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement. Please read the official statement carefully before investing.
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