Mark Stevens, CFP®

529 Plans and Estate Planning

Accelerated gifting

In 2019, gifts of up to $75,000 (or $150,000 for joint gifts) can be made to a 529 plan and no gift tax will be owed if a special election is made to spread the gift evenly over a five-year period.


Tax Consequences of 529 Plans

The following chart summarizes the federal tax consequences of gifting to a 529 plan.

Gift Tax

All contributions to a 529 plan qualify for the annual federal gift tax exclusion — $15,000 for individuals or $30,000 for joint gifts in 2019.

A special election for gifts up to $75,000 ($150,000 for joint gifts) can be made where the gift is spread evenly over a five-year period and no gift tax will be owed.

Grandparents are subject to the generation-skipping transfer tax (GSTT) in addition to federal gift tax. Gifts of $15,000 or less ($30,000 for joint gifts) are excluded for purposes of the GSTT. Only the portion of the gift that results in federal gift tax will also result in GSTT.

Estate Tax

Contributions made to a 529 plan generally aren't considered part of your estate for federal estate tax purposes when you die, even though you might retain control of the funds in the account (as 529 plan account owner) during your lifetime. Instead, the value of the account will be included in the beneficiary's estate.

The exception to this general rule occurs when you elect to spread a gift over five years and you die during this five-year period. In this case, the portion of the contribution allocated to the years after your death would be included in your gross estate for tax purposes.

Income Tax

Contributions grow tax deferred.

Withdrawals from a 529 plan used to pay the beneficiary's qualified education expenses are completely tax free at the federal level.

Withdrawals from a 529 plan that aren't used to pay the beneficiary's qualified education expenses (called a nonqualified distribution) face a double consequence — the earnings portion is subject to a 10% penalty and is taxed at the recipient's rate (in other words, the person who receives the distribution — either the account owner or the beneficiary — is taxed on it).

This communication is strictly intended for individuals residing in the state(s) of GA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.