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Practical Planning Tip: Year-end 529 Contributions

December 14, 2023

Today’s year-end planning tip will cover 529 Contributions:

With institutions of higher education in the news a lot recently given their role in fostering antisemitism on campus, this is an especially timely topic assuming you still want to send your kids and grandkids to college.

A 529 is a tax advantaged college savings account that may provide an opportunity for immediate tax savings if you live in one of the 20 states or more offering a full, or partial, deduction for your contributions to the home-state 529 plan. Most states require you to invest in the “in-state” plan to receive the deduction for your contributions. Though there are several states that are considered tax parity states, meaning you can use any state’s 529 plan to receive the deduction.

Annual Gift Exclusion: Make sure to make use of your Annual Gift Tax Exclusion if you haven’t already used it. You can give up to $17,000 a year gift tax free per person. The annual exclusion recycles on January 1st, so if you don’t use your 2023 gift allowance by then, you lose it.

You can watch the FULL video here.“Superfunding” 529 accounts: In this strategy, you can spread a tax-free gift to a 529 account over five years for gift tax purposes. So, a married couple not making any other gifts to the beneficiary during the five-year period can contribute up to $170,000 to a 529 plan for each child and, with the election, not run into gift tax problems.

Planning Tip:  If you’re a grandparent, this one is for you. 529 assets are NOT currently factored in as assets for the purpose of determining federal financial aid under the FAFSA process if held by grandparents, opposed to parents where they are considered. This may be a wonderful way for grandparents to save for their grandkids higher education without jeopardizing their ability to qualify for financial aid.