Author: Nick Prigitano
We all know that college is expensive. We also know that the last thing on a child's mind is how they are going to pay for college, 5, 10, or 15+ years from now. To help the funding hurdle many parents and grandparents use 529 college savings plan accounts to help pay for this, possibly quite large, future expense. Although to a child, a contribution to a college savings plan isn't as fun or exciting as a hot new toy, but we adults know that saving a little for the future can go a long way.
Gifting to 529 plans
Gifting money to a 529 plan can be a great, practical gift idea for friends/family who have children and use one of these accounts. Depending on the state plan that they use, it can be quite easy to make a gift to the account. For instance, the Utah 529 plan allows participants to register for a gifting program. When registered, the owner receives a code that they can provide to friends and family. When the person making a gift goes onto the website, they simply enter the code and are able to make the gift. The 529 plan makes sure it is processed correctly to the right account. The person making the gift does not see any of the account information (such as account numbers or dollar amounts in the plan), so the owner's privacy is maintained. Also, the person making the gift can elect to give anonymously if they do not want to notify the owner who they are.
How much can you give?
The IRS does have limits for how much you are able to give to someone, other than a spouse, during the course of a year and your lifetime. While there are limits, they will not apply to the vast majority of people. The annual exception currently is $15,000 per person, per individual they give to. This means that a husband and wife could give $15,000 each ($30k total) to each their niece, nephew, and brother (up to $90k for all gifts!) and fall under the annual gift limitation.
On top of that, 529 plans allow for 5-year's worth of forward gift funding. That means each person could contribute $75,000 ($15,000 x 5 years) in a year and use up the next 5 years of their gift limitation. For the vast majority of people, their gifts will be well below these amounts. But for those who may are able to, and want to, give more, it's important to know the limits.
This time of year is common for gift giving and helping one another. If you're back is up against the wall for what to get someone, or their kids, this year, maybe helping fund a future education is great gift idea. If you need help with your future college funding or overall financial plan, please reach out to our team.