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Gifting Rules Associated with 529 Plans

Posted by Michael J. O'Connor | CWS®, Vice President Investments
November 7, 2016

In a recent post on 529 plans titled, “Helping You Understand the Basics of 529 Plans,” we discussed some features of 529 plans work and whether they might make sense as part of your comprehensive financial plan.

529 plans can be useful for people who want to save for their children, grandchildren, or another relative’s college education in a tax efficient manner. They can also make sense from an estate planning standpoint, given some special gifting rules associated with 529 plans.

How Are Gifting Rules Different for 529 Plans?

The rules for 529 plans are different from other gifting scenarios and allow you to gift even more without incurring the gift tax. Current rules allow you to use up to five years of annual exclusions at once, meaning you can contribute $70,000 ($140,000 for married couples) to a 529 plan for each beneficiary.1

In contrast, the normal gifting limits are $14,000 for individuals, $28,000 for a married couple, per beneficiary. For example, if you and your spouse have three children, you can gift a total of $104,000 in 2013 (3 x $28,000 per child) before incurring the federal gift tax.2

This tactic can be useful for someone trying to reduce the size of their estate for tax purposes, while also saving for college for a loved one and having those savings grow tax-free. The beneficiary of the 529 plan can also use those funds tax-free for education-related expenses, making this strategy a tax-efficient one overall.3

There’s One More Beneficial Feature of 529 Plans

In other gifting scenarios, once you make the gift and it is out of your estate, you lose control over those assets.

With a 529 plan, you can remain the owner of the plan and control how the funds are partitioned to the beneficiary when they make it to college. This is a nice benefit for some people who want to strategically reduce the size of their estate, but who also want to maintain control of how their assets are used.1

Should You Consider Making a Gift to a 529 Plan This Year or in the Future?

This type of decision should be considered as a potential component of your overall financial plan. One of our Wealth Managers can help you decipher whether gifting to a 529 plan could make sense as part of your estate planning efforts and your comprehensive financial plan. In addition, we can help you navigate the broad offerings available to you with regards to 529 plans, and help you find a 529 plan that makes sense for you. Call us today at 1-800-541-7774 to get started. 



1 College Access 529


3 Fidelity


Additional Disclosure:

* WrapManager, Inc. is not a tax advisory firm. We recommend you contact your tax attorney or CPA prior to utilizing any of the tax-related strategies mentioned or discussed.

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