Contributing to a Section 529 college savings program is a great way for grandparents to help their grandchildren pay for college. It is also a great way to remove assets from the grandparent’s estate without paying estate tax. As an added feature, money in a 529 plan owned by a grandparent is not assessed by the federal financial aid formula when qualifying for student aid.
Grandparents, as well as other taxpayers, have a unique opportunity for gifting to Section 529 college savings plans by contributing up to $70,000 at one time, which currently represents five years of gifts at $14,000 per year. ($14,000 is the annual gift tax exclusion amount for 2013.) A married couple who elects gift-splitting can contribute up to double that amount ($140,000 in 2013) to a beneficiary’s 529 plan account(s) with no adverse federal gift tax consequences.
Example: Electing to spread a 529 plan gift over five years.
In 2013, Linda contributes $75,000 to a 529 plan account for the benefit of her grandson, James. She makes no other gifts to James in 2013. Because the gift exceeds the $14,000 annual gift tax exclusion, Linda elects to account for the gift ratably over five years beginning with 2013. Only $70,000 (five times the current annual gift tax exclusion) is eligible for the election; therefore, Linda is treated as having made an excludible gift of $14,000 in years 2013–2017, and a taxable gift of the remainder ($5,000) in 2013.
Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have questions or want more information.