Houston Estate Planning and Elder Law Attorney Blog
You can stuff a lot of money into a 529 college savings plan now and then do the same thing at the beginning of 2014 – a strategy that advisers say they are seeing many wealthy clients adopt this year.
Funding a 529 College Savings Plan before year-end is a great gifting strategy your college-bound grandkids. They will surely appreciate your gesture! And if you wanted to take that gift one step further, did you know you can actually super-fund it?
As though just funding a 529 were not good enough, Reuters provided the skinny on super-funding recently in an article titled “Should you super-fund your 529 college savings plan?”
The short answer is “yes,” if you have the means. Under the right circumstances, it may be more than worthwhile to superfund a 529 for your loved ones. By maximizing the rules in 2013, and then doing so again right after the ball drops in Times Square in 2014, some grandparents can earmark a cool $84,000 per grandchild for college savings in the coming weeks.
So, how does this work exactly?
Every year you can transfer $14,000 to anyone free of gift taxes through the annual gift tax exclusion. However, a special twist on this rule for 529 plans permits you to make five years of annual gift exclusion transfers in a single year. Accordingly, you could contribute $14,000 in the last days of 2013, then turn around in January and contribute another $70,000 (5 x $14,000).
Remember, 529 plans vary a bit from state to state. Some states are better than others. Regardless, this super-funding strategy is not just about college planning anymore. It is a powerful wealth transfer strategy at the same time. Think of it this way: you are moving great wealth to your loved ones while you can enjoy watching them make a life from it.
Even if this super-funding strategy is too late for you to implement in 2013, the idea remains. The question then becomes whether you want to give the inheritance now or leave it after you are gone? Perhaps the answer is a little of both.
In the right financial and family circumstances, a 529 plan will make perfect sense, super-funding or otherwise.
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Reference: Reuters (December 16, 2013) “Should you super-fund your 529 college savings plan?”