529 Plan - Gift Tax Considerations

Gift Tax Considerations

Contributions to 529 plans are considered gifts under the federal gift tax regulations and hence any contributions in excess of $13,000 if filing single (or $65,000 over five years) or $26,000 if filing married jointly (or $130,000 over a five-year period) count against the one-time gift/estate tax exemption. The five-year period is known as the five-year carry-forward option: Once the single donor puts in $65,000 or the married jointly donor puts in $130,000, they are not able to make another contribution (gift) to that individual (without using part of their lifetime gifting exclusion) for five years.

Since tuition payments are not subject to the annual gift limitation, parents who are trying to minimize estate taxes may be better off making their annual gifts to another vehicle such as a Uniform Transfers to Minors Act (UTMA) account and then paying the tuition directly.