Accelerate Gifting with a 529 Plan Strategy

For a growing number of parents and grandparents, 529 education saving plans have become a centerpiece of their gifting strategies. In addition to furthering their family’s education planning goals, these popular education savings plans offer important wealth transfer benefits. They allow parents, grandparents, friends, and family to contribute the highest amount that can be contributed before incurring gift taxes by accelerating contributions in a given tax year.

How does this strategy work?
Under federal gift tax exclusion rules, individuals can contribute up to $18,000 ($36,000 for a married couple) to 529 plans for as many beneficiaries as they like in 2024, without incurring wealth transfer taxes or using their lifetime exemption amounts.¹ When contributed to a 529 plan, these gifts have the potential to grow and be distributed free of federal, and in most cases, state income taxes, as long as they are used for qualified education expenses as defined by the Internal Revenue Service.

When you accelerate 529 contributions, you can “bunch” up to five years of gifts under the current gift tax exclusion rules and limits. So for 2024, an individual could gift up to $90,000 per beneficiary, and a married couple could gift up to $180,000 per beneficiary. (There’s no limit on the number of individuals/beneficiaries you can make gifts to annually.) However, if you choose to accelerate five years of gifts to a 529 account in 2024, you will not be able to contribute additional money to that same account until 2029.

Why accelerate gifting now?
By bunching contributions, more money is working to help generate growth for your beneficiaries now. Another timely reason to consider this strategy is that the lifetime gift exclusion amount under current law (adjusted annually for inflation) is set to expire at the end of 2025. Unless Congress extends these limits, exclusion amounts are expected to revert back to pre-2018 levels. For 2024, the lifetime gift limit is $13.61 million for individuals and $27.22 million for married couples. Those with very large estates may want to discuss this strategy with their tax and financial professionals to determine if it makes sense to maximize contributions now under the current tax laws.

If you’re considering this strategy, keep the following in mind:

• December 31 is the deadline for funding a 529 for the current tax year
• The contributions you make to a 529 plan will reduce the amount of your taxable estate by the amount of your 529 plan contributions
• 529 plan contributions are one of the only assets that account owners can remove from their taxable estates while still maintaining control over the assets

To learn more about this or other strategies to help protect your legacy, contact my office now to schedule a time to talk.

^{1)“IRS provides tax inflation adjustments for tax year 2024.” IRS.gov, 9 NOV 2023, https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024.}