529 Plan - how best to fund w/o gift tax issues

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529 Plan - how best to fund w/o gift tax issues

Postby hsingh » Fri Apr 05, 2013 8:44 pm

My wife and I file our taxes jointly and last year opened a 529 plan for our daughter. I have a few questions regarding how best to continue funding it with out any tax issues:

- Should we each contribute $13,000 each year from our "individual" bank accounts so that there is a paper trail that we did no fund in excess of the annual gift exemption? Or can I just fund $26,000 from my account on behalf of both parents?

- If I fund $26,000 from one account, does it have to be a "joint" account? And if it isn't, do I have to then file form 709 for any reason?

Separately, we are expecting another addition to the family later this year - if we want to open a 529 for the yet to be born child, what is the best way of doing so and maxing our $26,000 contribution to it?

Thanks for your help.
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby JamesSFO » Fri Apr 05, 2013 8:49 pm

What state?
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby lwfitzge » Fri Apr 05, 2013 9:01 pm

The source (bank account) does not matter, e.g., what you give matters not where you gave from. IRS just expects you and spouse not exceed the gift limits of $26,000 for a married couple giving to one person in a tax year. Beyond those limits or when "gift splitting", IRS requires a gift tax return (see IRS pub 950).
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby hsingh » Fri Apr 05, 2013 9:11 pm

JamesSFO wrote:What state?

NY
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby hsingh » Fri Apr 05, 2013 9:13 pm

lwfitzge wrote:The source (bank account) does not matter, e.g., what you give matters not where you gave from. IRS just expects you and spouse not exceed the gift limits of $26,000 for a married couple giving to one person in a tax year. Beyond those limits or when "gift splitting", IRS requires a gift tax return (see IRS pub 950).

It would be great if others can confirm this as well since I am getting some conflicting information on the web suggesting that it better be a joint account if its the only source of the entire $26,000 funding to the 529.
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby hsingh » Sat Apr 06, 2013 9:43 am

I found the following on turbotax's forum... hence my confusion about filing 709 if we just use one account to fund $26,000. Can you please help clarify?

http://turbotax.intuit.com/tax-tools/ta ... 12036.html

"Example 1
In 2012, you give your son $14,000 to help him afford the down payment on his first house. This is a gift, not a loan. You must file a gift tax return and report that you used $1,000 ($14,000 minus the $13,000 annual exclusion) of your $5.12 million lifetime exemption.
...
...
Example 3
Same facts in Example 1, but your spouse agrees to "split" the gift—basically this means he or she agrees to let you use part of his or her exclusion for the year. A husband, for example, could give $26,000 to his son without triggering the gift tax if his wife agrees not to give the son any gift that year. Although no tax is due in this situation, the husband would be required to file a gift tax return indicating that the wife had agreed to split the gift."
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby kaneohe » Sat Apr 06, 2013 1:20 pm

I am not sure this guarantees the right result but it seems simple enough to fund it from a jt. account either with a single check signed by both or with two equal checks , one signed by H and the other signed by W. Not sure what you do if you are funding electronically unless there are separate logins and identitification for each party.

btw....the annual exclusion increased this yr to 14K http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift.
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby Iorek » Sat Apr 06, 2013 3:15 pm

hsingh wrote:
lwfitzge wrote:The source (bank account) does not matter, e.g., what you give matters not where you gave from. IRS just expects you and spouse not exceed the gift limits of $26,000 for a married couple giving to one person in a tax year. Beyond those limits or when "gift splitting", IRS requires a gift tax return (see IRS pub 950).

It would be great if others can confirm this as well since I am getting some conflicting information on the web suggesting that it better be a joint account if its the only source of the entire $26,000 funding to the 529.


lwfitzge, do you have a cite for that statement about what the IRS expects?

Personally, I would not do it unless you have some explanation for why $13k came from you and $13k came from your wife, meaning either that it came from a joint account, or each check came from an account in that person's name. I recognize, however, that that is a fairly conservative position and in practice it's unlikely to come up very often.
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Re: 529 Plan - how best to fund w/o gift tax issues

Postby kaneohe » Sun Apr 07, 2013 1:57 am

a related post from another forum http://fairmark.com/forum/read.php?4,69611

Re: Form 709 Gift Tax
Posted by: Kaye Thomas, April 7, 2013 01:00AM
When the gift comes from community property you're each giving half so there's no reason to elect gift splitting. That election is typically used when one spouse makes gifts from separately owned property exceeding the annual exclusion amount. Putting half the gift on each spouse's return makes it possible to use both annual exclusion amounts against the gift.

Kaye Thomas
Fairmark.com
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