Florida Prepaid gift tax issues

[bilperk]

I am likely going to do a lump sum next year in the Florida Prepaid program for one of my granddaughters. The amount for 4 year university program is about 29K. Is this considered a gift for tax purposes and since it exceeds the current allowed annual gift amount, will I have to file something on my taxes. Not looking for tax advice, just what others who may have done this may know.

[Gill]

Not a problem, but you are required to file IRS form 709, a gift tax return. Easy form to complete and no tax involved.
Gill

[bilperk]

Thank you. I appreciate the response.

[WannabeAgAlum]

I don't know anything about the program you are referring to, but I will note the often overlooked exception found in Internal Revenue Code Section 2503(e) that allows you to pay tuition directly to an educational organization without it counting against your annual exclusion amount or your lifetime exemption, in which case no 709 would be needed.

(e)Exclusion For Certain Transfers For Educational Expenses Or Medical Expenses
(1) In General — Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter.
(2) Qualified Transfer — For purposes of this subsection, the term “qualified transfer” means any amount paid on behalf of an individual—
(A) — as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or
(B) — to any person who provides medical care (as defined in section 213(d)) with respect to such individual as payment for such medical care.

Wannabe

[Gill]

I don't know anything about the program you are referring to, but I will note the often overlooked exception found in Internal Revenue Code Section 2503(e) that allows you to pay tuition directly to an educational organization without it counting against your annual exclusion amount or your lifetime exemption, in which case no 709 would be needed.

(e)Exclusion For Certain Transfers For Educational Expenses Or Medical Expenses
(1) In General — Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter.
(2) Qualified Transfer — For purposes of this subsection, the term “qualified transfer” means any amount paid on behalf of an individual—
(A) — as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or
(B) — to any person who provides medical care (as defined in section 213(d)) with respect to such individual as payment for such medical care.

Wannabe

That exemption wouldn’t apply to these facts.
Gill

[WannabeAgAlum]

Ah, I see it's a 529. Agreed.

If bilperk is married, bilperk and spouse can split the gift (up to $15k each) and avoid the 709.

Wannabe

[bilperk]

Ah, I see it's a 529. Agreed.

If bilperk is married, bilperk and spouse can split the gift (up to $15k each) and avoid the 709.

Wannabe

It is not a 529. It is a program that allows you to prepay future college for someone at todays rates. There are several plans, like 4 year university, 4 year college, 2+2, and so on. The one I am choosing allows lump sum for about 29K, 5 year payments, or monthly. The last two would not be an issue with gift tax. I know with 529s there is some type of 5 year acceleration rule which allows you to lump the yearly gifts together in one year. I'm guessing this is what the 709 form is for. The program allows only one account owner, like a 529, so splitting won't work.

[WannabeAgAlum]

Okay.

I'm guessing you thought of this, but is there no way to do two accounts with 14.5k each?

If not, you can still gift split with just one account but will need a 709 wherein you elect gift split with spouse.

Wannabe

[amitb00]

Florida prepaid plan is a 529 plan with defined benefit rather than defined contribution. You are not responsible with How funds are invested but will get the benefit (prevailing Florida tuition) at a later date. You will not pay tax on gains if used for educational purpose.

[bilperk]

Okay.

I'm guessing you thought of this, but is there no way to do two accounts with 14.5k each?

If not, you can still gift split with just one account but will need a 709 wherein you elect gift split with spouse.

Wannabe

No split, as with a 529, there can be only one owner. If it was a regular 529, we could just open two accounts at 14.5K each. But the prepaid plan does not allow more than one account per beneficiary, and only one way to lump sum without paying more.