Gift tax and 529 plans

We’re diving into gift tax rules and 529 plans to help you maximize your contributions without triggering gift tax.

Although 529 plans don’t have annual contribution limits like Roth IRAs or 401(k)s, contributing large amounts to your child’s 529 plan might raise concerns about potential gift tax obligations.

What is Gift Tax?

Gift tax in the United States is a federal tax applied to the transfer of assets or money from one person (the donor) to another (the beneficiary) without receiving something of equal value in return. The tax primarily affects high-net-worth individuals making substantial gifts, including 529 contributions. Certain exclusions and exemptions allow many people to avoid paying gift tax altogether.

• Gift tax is imposed on transfers of money or property to another person without expecting repayment, including contributions over $19,000 to a single 529 plan or multiple gifts exceeding $19,000 in a single year.
• Typically, the person giving the gift (the donor) is responsible for paying the tax, not the recipient (the beneficiary).
• Gift tax applies to both cash and non-cash assets, such as real estate, stocks, and other valuable property.

Annual Gift Tax Exclusion

Contributing to a 529 plan, or giving gifts in general, doesn’t necessarily mean you’ll need to pay gift tax. The IRS allows an annual exclusion amount for gifts, enabling donors to give a certain amount each year without incurring gift tax.

• 2025 Annual Exclusion: $19,000 per recipient, per year (this amount is periodically adjusted for inflation).
• Gifts under the exclusion limit don’t need to be reported or counted toward the donor’s lifetime exemption.
• The exclusion applies individually, meaning married couples can give up to $38,000 per recipient in 2025 without triggering gift tax.

The IRS allows certain situations where you can give a gift over $19,000 without needing to file a gift tax return. These include:

• Giving gifts to your spouse, provided they are a U.S. citizen.
• Paying someone else’s tuition or medical expenses directly to the institution.
• Donations to nonprofits, charitable organizations, and political organizations.

Lifetime Gift Tax Exemption

In addition to the annual exclusion, there is a lifetime exemption amount that applies to total gifts made throughout a person’s life.

• 2025 Lifetime Exemption: $13.99 million per individual (subject to change annually based on tax laws
• Gifts that exceed the annual exclusion count toward the lifetime exemption.
• The lifetime exemption is shared with the federal estate tax exemption, meaning any gifts above the annual exclusion reduce the amount that can be transferred tax-free upon death of the donor.
• The exclusion applies individually, meaning partners in marriage can give up to $27,98 million per recipient in 2025 without affecting the amount that can be transferred tax-free upon death of the donor.

Gift Tax and Superfunding a 529 Plan

Superfunding allows donors to front-load up to five years of contributions into a 529 plan at once without incurring gift tax.

• 2025 Superfunding Limit: Individuals can contribute up to $95,000 ($19,000 annual exclusion x 5 years) per beneficiary, and married couples can contribute up to $190,000 if they split the gift.
• Gift Tax Implications: Superfunding effectively uses five years’ worth of gift tax exclusions in advance. Donors must file IRS Form 709 to notify the IRS of this five-year election but won’t owe gift tax unless additional gifts are given to the same beneficiary within the five-year period.

In most cases, gift tax isn’t a concern when saving for college with a 529 plan. However, if you’re in the fortunate position to contribute more than $19,000 per year, be sure to report and file a gift tax return to stay compliant.