Do 529 Plan Gifts Get Federal Or State Gift Tax Benefits?

If you choose to establish a 529 savings plan for a beneficiary, you can also elect to set this up for as many beneficiaries as you want. These education saving plans are very popular as estate planning tools, and are very valuable for grandparents who wish to support their grandchildren’s future education.

Although you will not receive a federal income tax deduction for those contributions put inside a 529 savings plan, there are six states that provide income tax advantages for contributions to any 529 plan and 35 states that allow for estate income tax benefit in the form of a credit or deduction to any contribution you make to the plan sponsored by the state. Those contributions do qualify for gift and federal estate tax benefits.

In 2022, that federal gift tax allows you to gift up to $16,000 per beneficiary, and does not trigger any tax consequences while also not reducing your lifetime gift tax and estate tax exemption amount. There is still time for you to make a gift to a loved one and to support their educational dreams. It’s also a great time of year to review your overall estate plan with the help of a Virginia Beach estate planning lawyer.

You can also use up to five years of annual gift tax exclusions when you make 529 plan contributions. It’s important to work with qualified financial professionals as well as estate planning attorneys to verify you have covered all your bases and understand the various impacts of using 529 Savings Plan as a part of your overall estate plan.



What Is the Gift Tax?

The federal government enables you to take advantage of a program known as the gift tax. Every year, gift tax amounts are announced so that you can make these gifts free of paying any taxes or needing to file a gift tax return. These are known as annual exclusions gifts and the maximum for 2021 is $15,000 per person. In 2022, that amount will increase to $16,000 per person.

Over the course of your lifetime, you can transfer these assets on an annual basis without triggering your gift tax exemption amount. In 2021, the gift tax exemption amount is $11.7 million, meaning that you could take advantage of supporting your loved ones now without triggering any additional tax consequences during this time.

If you want to make use of gift tax exemptions and incorporate this into your broader estate planning strategy, schedule a consultation with an experienced estate planning lawyer. Leveraging this along with long term planning, such as incorporating materials inside your will or developing a living trust can help you to accomplish your estate planning goals.

The support of an estate planning lawyer can also help you adapt your strategies as time brings about the need for new tactics or as state and federal laws could potentially impact your future.

A Virginia Beach, VA can assist you with these aspects of your planning. Schedule a time to meet with a Virginia Beach estate planning lawyer today.