6-year gift tax averaging

Mark KantrowitzBy: Mark KantrowitzBy: Savingforcollege.com | 

5-year gift tax averaging is a key benefit of 529 college savings plans. 5-year gift tax averaging lets you contribute five times as much money to a 529 plan in a single year. There are, however, a few tricks that let you give even more money without incurring gift taxes.

5-year gift tax averaging

With 5-year gift tax averaging, each contributor to a 529 college savings plan can make a lump sum contribution of up to five times the annual gift tax exclusion. A couple can jointly give double this amount. The contributions are treated as though they were spread evenly over a five-year period starting with the current calendar year. The lump sum contribution will use all or part of the annual gift tax exclusion for the beneficiary during the five-year period.

For example, a grandparent can give up to $75,000 in 2018 as a lump sum to each grandchild without having to pay gift taxes, based on the $15,000 annual gift tax exclusion.The grandmother and grandfather can together jointly give up to $150,000 to each grandchild. The grandparents will be unable to give any more money to each grandchild in 2018, 2019, 2020, 2021 and 2022.

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Find a 529 Plan. Select your state below.

Did you know that residents are not limited to investing in their own state’s plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state’s plan and other options.


How to give even more money

There are, however, a few workarounds that grandparents can use to give more money to each grandchild without having to pay gift taxes or use up part of their lifetime gift tax exclusion.

  • 6-year gift tax averaging. With careful timing, you can give the equivalent of six years of contributions at once. To take advantage of this, you would give one year’s contributions up to the annual gift tax exclusion by December 31 of one year, and then use 5-year gift tax averaging on or after January 1 of the next year.This lets you give an extra $15,000 per beneficiary ($30,000 if given jointly as a couple).
  • Give to the parents. If the grandparents give money to the parents, up to the annual gift tax exclusion, nothing stops the parents from contributing this money to the grandchildren’s 529 college savings plans. This lets you give an extra $15,000 per parent each year ($30,000 each year if given jointly as a couple), which may then be split among the grandchildren.
  • Give the gap. A lump sum contribution in excess of the annual gift tax exclusion is treated as occurring ratably over the 5-year period starting with the current calendar year. The annual gift tax exclusion typically increases by $1,000 every three to five years. If the annual gift tax exclusion increases during the five-year gift tax averaging period or a contributor gave less than five times the annual gift tax exclusion, the contributor may be able to give a supplemental contribution each year. The amount of the supplemental contribution in a given year is based on the difference between the then current annual gift tax exclusion and the five-year average of the lump sum contribution.
  • Give to a different beneficiary’s 529 plan. The grandparents can use five-year gift tax averaging to contribute to a different beneficiary’s 529 college savings plan, such as a 529 plan with a parent listed as the beneficiary, and later change the beneficiary to the grandchild or rollover all or part of the funds to a 529 plan that lists the grandchild as the beneficiary. The grandchild must be a member of the family of the original beneficiary.Although rollovers to a 529 plan for the benefit of the same beneficiary are limited to once every 12 months, this limitation does not apply to changes in the beneficiary or rollovers to a different beneficiary’s 529 plan.

Historical annual gift tax exclusion

As this table shows, the annual gift tax exclusion increases by $1,000 every three to five years. It is adjusted for inflation and rounded to the nearest multiple of $1,000.


Tax year

Annual gift tax exclusion

1982-2001

$10,000

2002-2005

$11,000

2006-2008

$12,000

2009-2012

$13,000

2013-2017

$14,000

2018-present

$15,000



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Mark Kantrowitz

Mark Kantrowitz

Publisher and VP of Research

Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college.