Monthly top tips

529 E-ditorials

00-7: Don't Forget Gift Tax Returns
Joe Hurley
Friday, March 10th 2000

If you made over $10,000 in contributions to 529 plans for any one beneficiary during 1999, don't forget to file Form 709 US Gift Tax Return by April 17, 2000. If 1999 was the first year in which you made a contribution over $10,000, you may make the election to have the contribution (up to $50,000) treated as made ratably over a five-year period 1999 to 2003. The election is made by checking Box B on Schedule A (page 2 of Form 709) and attaching some information about the contribution. If you made this election in a prior year, be sure to discuss your situation with your tax adviser because it gets trickier.

If you make a gift-splitting election with your spouse, and your half of the contribution exceeds $10,000, be sure that both spouses make the 5-year averaging election on separate Forms 709 if desired.

What happens if you made an $11,000 contribution for one child, and a $50,000 contribution for another? Can you make the election for the larger contribution and forego the election for the smaller one? (This might be desirable if you intend to make larger contributions for the first child in the near future.) The answer is not clear, and although my reading of the law would indicate you can do this, you should consult with your own adviser.

Also remember to investigate your state gift tax rules, if applicable. This can also get tricky, especially in a state like New York. One person was told by a New York tax department employee on the telephone that the 5-year averaging election does not apply in New York for 1999 (the gift tax goes away in New York this year 2000) and so the entire contribution must be reported as a gift. The state employee was not correct. New York gift tax does not recognize the 1997 amendments to Section 529, and so the contribution was not a ""completed gift"" and does not have to be reported as a gift at all for New York purposes.

» 05-4: The 529 marshals have arrived - 08/30/05
» Our 5.29th-year anniversary - 06/29/05
» 05-2: 529s and the new Bankruptcy Act - 04/28/05
» 05-1: Reform or Deform? - 02/27/05
» 04-6: Perspectives on the 529 debate - 12/28/04
» Show All Archives