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Gifting strategies with 529 plans

Our Blog Nov 13, 2017
Columbia Threadneedle Investment Team

Prepare for future college costs, and benefit from flexible gift and estate planning strategies — all at the same time.

529 plans offer significant benefits for beneficiaries because they can help fund future college expenses. But they also benefit account owners because they provide opportunities for gifting and estate planning. In this respect, 529 plans have a unique advantage: The account owner maintains control of the account assets, even though contributions are considered completed gifts and are excluded from the account owner’s taxable estate.

Here are two advanced gifting strategies with a 529 plan:

  • Annual gifting allows an annual gift tax exclusion of up to $14,000 per recipient for individuals and $28,000 for married couples. In 2018, these limits will increase to $15,000 and $30,000, respectively.
  • Accelerated gifting allows a one-time gift to a 529 plan of up to $70,000 per recipient for individuals or $140,000 for married couples, to be contributed and prorated over five years — without incurring federal gift tax or using the donor’s lifetime gift tax exclusion. In 2018, these limits will increase to $75,000 and $150,000, respectively.

With a 529 plan, you can give a gift but keep control. Want to learn more? Read through this example to see how 529 gifting can be a powerful tool for both college savings and estate planning goals:

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Withdrawal of earnings not used for qualified higher education expenses will be subject to federal and possibly state and local income tax and may be subject to an additional 10% federal penalty tax.

Total contributions to each 529 plan cannot exceed the amount necessary to provide for the beneficiary’s qualified higher education expenses. Each plan generally establishes a contribution limitation.

The tax information set forth in this article is general in nature and does not constitute tax advice on the part of Columbia Management Investment Distributors, Inc. or its affiliates. The information cannot be used for the purposes of avoiding penalties and taxes. Consult with your tax advisor regarding how aspects of a 529 plan relate to your own specific circumstances.