529 gifting strategies for your clients

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Key takeaways
Understand the gift tax to potentially maximize contributions
Be prepared to inform your clients about annual and lifetime gift tax exclusions.
Move large amounts of funds with accelerated gifting
Accelerated gifting can help investors superfund 529s or transfer wealth easily.
Keep track of all types of gifts
Help clients keep track of all their gifts to avoid unforeseen taxes.

The holiday season is a great time for financial professionals to talk to clients about the potential benefits of 529 gifting strategies. While gifting a 529 contribution may help the beneficiary and family looking to meet their education savings goals, savvy investors can use a 529 gifting strategy to meet different objectives. Financial professionals should be ready to discuss 529 gifting and how they may benefit investors.

Understanding the gift tax

Before investors can decide how to strategize 529 plan gifting, it’s important to educate them on the rules of the gift tax to make sure they’re aware of its limitations.

  • What is it? A gift is categorized as a transfer of money or property to another person where the gift giver receives nothing (or less than the full value in return). The value of the gift may result in a federal tax.
  • What amount triggers the gift tax? Gifts over the amount of $15,000 will need to be reported to the government and may be subject to taxation.
  • Can the gift tax be avoided? The gift tax can be avoided by making sure gifts do not go over the annual exclusion amount of $16,000 or the lifetime exclusion amount of $12.06 million in 2022. Updated data to fit 2022 gift tax exclusion

Additional considerations with the gift tax

The gift tax may seem cut and dry, but investors may give more while avoiding the gift tax by understanding these additional qualifications.

  • Federal reporting of gifts is per gift recipient. This means that investors can give to multiple parties without reporting to the IRS if the gifts are under the annual exclusion of $15,000.
  • The annual exclusion is per person. Everyone has this annual exclusion, so that means married couples can give a total of $30,000 a year without filing paperwork with the IRS.

529 gifting strategies

Because of the tax-advantaged status of 529 plans, investors can use different 529 gifting strategies for different benefits.

  • A potential tax break. Since many states offer tax incentives on in-state 529 plans, 529 gifts of all amounts have the possibility of giving a tax break to the gift giver.
  • Superfund a 529 plan. A unique 529 gifting strategy allows for large contributions that exceed the annual exclusion rates. Known as “accelerated gifting,” individuals can contribute one lump sum that is equal to five years of contributions. That means individuals can contribute up to $75,000 ($150,000 for a married couple) when using 529 accelerated gifting. The only restriction is that no other gifts can be given to the individual receiving the gift for five years.
  • Reduce estate taxes. The IRS considers assets in a 529 plan as a complete gift. Assets are treated as the beneficiary’s assets and not the account owners’. If individuals are interested in lowering the amount of their taxable estate, a 529 gifting strategy can help do this.

The gift tax includes 529 and non-529 gifts, so it’s important for financial professionals to help clients stay on track of their giving to develop a smart 529 gifting strategy. Discover more advice, insights ,and resources specially designed for financial professionals on our resources page and download a copy of Accelerated Gifting here.

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