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Are there gift & estate tax benefits for 529 plans?
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529 Basics
529 Basics
- What is a 529 plan?
- Top 7 benefits of 529 plans
- 529 gift & estate tax benefits
Common Questions
Are there gift & estate tax benefits for 529 plans?
529 Basics
529 Basics
- What is a 529 plan?
- Top 7 benefits of 529 plans
- 529 gift & estate tax benefits
Common Questions
The gift and estate tax treatment of an investment in a 529 plan is a good news, bad news situation.
The bad news is that your contribution is treated as a gift to the named beneficiary for gift tax and generation-skipping transfer tax purposes and so you need to be aware of this exposure particularly if you are making other gifts to the beneficiary during the same year.
The good news is that your contribution qualifies for the $15,000 (in 2020) annual gift tax exclusion and so most people can make fairly large contributions without incurring the gift tax.
Incentive to make large up front deposits
Even better news is that if you make a contribution of between $15,000 and $75,000 for a beneficiary, you can elect to treat the contribution as made over a five calendar-year period for gift tax purposes. This allows you to utilize as much as $75,000 in annual exclusions to shelter a larger contribution. The money (and the growth of your account) gets out of your estate faster than if you made contributions each year.
Table of Contents
- What is a 529 Plan?
- Name the top 7 benefits of 529 plans
- Are there gift & estate tax benefits for 529 plans?
- How do I select the right investments for my 529 plan?
- Which is the best 529 plan available?
- Does a 529 plan affect financial aid?
- Can I have 529 plans from multiple states?
- Are 529 plans only for my state's public colleges?
- What is the penalty on an unused 529 plan?
- 529 savings plans and private school tuition
Asset control plus estate planning benefits
And the best news is that the asset leaves your estate but doesn't leave your control. This is a truly remarkable benefit when you compare it to the "normal" gift and estate tax laws. Anyone who is being advised to reduce their estate tax exposure through gifting, but cannot stand the thought of irrevocably giving away their assets, can now have their cake and eat it too. Of course, if you later revoke the account its value comes back into your estate. Your estate will also have to include a portion of any contribution made with the five-year averaging election if you don't live past the fourth year.
The gift and estate tax treatment of an investment in a 529 plan is a good news, bad news situation.
The bad news is that your contribution is treated as a gift to the named beneficiary for gift tax and generation-skipping transfer tax purposes and so you need to be aware of this exposure particularly if you are making other gifts to the beneficiary during the same year.
The good news is that your contribution qualifies for the $15,000 (in 2020) annual gift tax exclusion and so most people can make fairly large contributions without incurring the gift tax.
Incentive to make large up front deposits
Even better news is that if you make a contribution of between $15,000 and $75,000 for a beneficiary, you can elect to treat the contribution as made over a five calendar-year period for gift tax purposes. This allows you to utilize as much as $75,000 in annual exclusions to shelter a larger contribution. The money (and the growth of your account) gets out of your estate faster than if you made contributions each year.
Asset control plus estate planning benefits
And the best news is that the asset leaves your estate but doesn't leave your control. This is a truly remarkable benefit when you compare it to the "normal" gift and estate tax laws. Anyone who is being advised to reduce their estate tax exposure through gifting, but cannot stand the thought of irrevocably giving away their assets, can now have their cake and eat it too. Of course, if you later revoke the account its value comes back into your estate. Your estate will also have to include a portion of any contribution made with the five-year averaging election if you don't live past the fourth year.