Years after my kids are grown, I discovered that Section 529 plans are something I am now thinking about as my grandchild Odessa was born last month and there are only so many clothes and toys you can buy her, so I thought college…..
The amount you transfer to a Section 529 plan on behalf of a beneficiary qualifies for the annual gift-tax exclusion. Under the exclusion, you can give away up to $14,000 a year – or $28,000 for joint gifts made by a married couple – to an account for the beneficiary without paying any gift tax.
Strategy: Front -load your contributions to a Section 529 plan. The tax law allows you to give the equivalent of five years’ worth of contributions up front with no gift-tax consequences. The gift is treated as if it were spread out over the five-year period.
For instance, you and your spouse might together contribute the maximum $140,000 (5 x $28,000) on behalf of a grandchild this year without paying any gift tax. If you have five grandchildren entering college soon, together you can contribute $140,000 to their Section 529 plans, completely free of any gift-tax consequences.
Tip: Any excess above the annual gift-tax exclusion may be sheltered by the lifetime gift-tax exemption.