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

That depends on the amount of your lump-sum contribution, as well as the extent to which you've used your lifetime applicable exclusion amount of about $11,200,000 (in 2018).

All contributions to 529 plans are considered present interest gifts that qualify for the $15,000 annual federal gift tax exclusion. So, a gift of $15,000 or less to your grandchild's 529 account will not cause a gift tax. A contribution of $15,000 or less to your grandchild's 529 account is also excluded for purposes of the federal generation-skipping transfer tax (GSTT) (you also have an exemption from the GSTT, which is also about $11,200,000 in 2018).

However, 529 plans offer a special accelerated gifting option. Specifically, if you make a lump-sum gift to your grandchild's 529 plan of up to $75,000 in a single year (or $150,000 for married couples), you can avoid gift tax if you treat the gift as having been made in equal installments over a five-year period and you don't make any other gifts to that beneficiary during the five-year period. (This effectively treats your gift as five consecutive annual gifts of $15,000 each.) You must make this special election on your federal gift tax return (which you must file if your gift is over $15,000). If you don't make this election, any amount over $15,000 in a year to the same beneficiary is a taxable gift. (But keep in mind that you must use up your lifetime applicable exclusion amount 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.

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.



Prepared by Broadridge Investor Communication Solutions, Inc, Copyright 2011