Education Planning Common Questions

I'd like to make a lump-sum contribution to my grandchild's 529 account. Will I owe gift tax?

Answer:

That depends on a few things, including the amount of your lump-sum contribution and the extent to which you've used your gift tax applicable exclusion amount of $1 million.

All contributions to 529 plans are considered present interest gifts that qualify for the $12,000 (2008 figure) annual federal gift tax exclusion. So, a gift of $12,000 or less to your grandchild's 529 account will not cause a gift tax. A contribution of $12,000 or less to your grandchild's 529 account is also excluded for purposes of the generation-skipping transfer tax (GSTT).

If your total yearly contribution to the 529 plan exceeds $12,000, you can elect to treat your contribution (up to $60,000 in 2008) as if made evenly over a five-year period to avoid federal gift tax. You make this election on your federal gift tax return (which you must file if your gift is over $12,000). Any amount over $12,000 in a year to the same beneficiary is a taxable gift. Keep in mind that you must use up your lifetime credit before any gift tax is actually paid.

You'll also need to investigate the gift tax rules of your state, since state tax treatment can differ.

GE 38281 (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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