West Michigan Financial Services
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529 Plans and Estate Planning
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Accelerated gifting
In 2024, gifts of up to $90,000 ($180,000 for joint gifts) can be made to a 529 plan and no gift tax will be owed if a special election is
made to spread the gift evenly over a five-year period.
| | Tax Consequences of 529 Plans
Gift Tax | All contributions to a 529 plan qualify for the
annual federal gift tax exclusion: $18,000 for individuals or $36,000 for
joint gifts in 2024. A special election for gifts up to $90,000 ($180,000 for joint gifts) can be made where the gift is spread evenly over a five-year
period and no gift tax will be owed.
Grandparents are subject to the generation-skipping
transfer tax (GSTT) in addition to federal gift tax. Gifts of $18,000 or less ($36,000 for joint gifts) are excluded for purposes of the GSTT. Only the
portion of the gift that results in federal gift tax will also result in GSTT.
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Estate Tax | Contributions made to a 529 plan generally aren't
considered part of your estate for federal estate tax purposes when you die,
even though you might retain control of the funds in the account (as 529 plan
account owner) during your lifetime. Instead, the value of the account will be
included in the beneficiary's estate.
The exception to this general rule occurs when you
elect to spread a gift over five years and you die during this five-year
period. In this case, the portion of the contribution allocated to the years
after your death would be included in your gross estate for tax purposes.
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Income Tax | Contributions grow tax deferred.
Withdrawals from a 529 plan used to pay the
beneficiary's qualified education expenses are completely tax free at the
federal level.
Withdrawals from a 529 plan that aren't used to pay
the beneficiary's qualified education expenses (called a nonqualified
distribution) face a double consequence - the earnings portion is subject to a
10% penalty and is taxed at the recipient's rate (in other words, the person
who receives the distribution - either the account owner or the beneficiary -
is taxed on it).
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Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC. Member FINRA/SIPC. Infinex and the bank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to
investment risk, including the possible loss of value.
NOT FDIC-INSURED. NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY. NOT GUARANTEED BY THE BANK. MAY GO DOWN IN VALUE.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2024. |
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