Gift Tax and Estate Benefits
A 529 college savings plan allows you to complete a gift for purposes of the federal gift tax exclusion while remaining in control of the assets as the account holder. Contributions may also qualify for special 5-year averaging of the contribution, allowing a larger lump sum to qualify for the gift tax exclusion over that time if the proper election is made.
For example: For the 2023 tax year, if the amounts contributed by you for your beneficiary’s 529 account, together with any other gifts to that person (over and above those made to your account) do not exceed $17,000 ($34,000 for married couples making a proper election), no gift tax will be imposed for the year. Because you are permitted to average your 529 contributions over five years, gifts for a beneficiary of up to $85,000 can be made in 2023 ($170,000 for married couples making a proper election) and averaged out over five years for the gift tax exclusion. The ability to average a $85,000 gift over five years is a benefit that is unique to 529 plans.
This allows you to efficiently move assets over and above the $17,000 gift-tax exclusion limit into a tax-deferred investment.
However, you should read the Federal Tax Considerations in the MCIP Plan Disclosure Statement for further important information. In addition, you should consider consulting with a tax and estate-planning professional before investing.