529: Can someone use 5-year gift tax averaging to contribute in part to account owned by spouse (same beneficiary)?

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peseta
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Joined: Mon Mar 09, 2015 11:40 pm

529: Can someone use 5-year gift tax averaging to contribute in part to account owned by spouse (same beneficiary)?

Post by peseta » Sat May 25, 2019 9:21 pm

This may be a question for a tax expert, but wanted to throw it out here first. Assume that a couple who files taxes jointly wants to put $75,000 into existing 529s for their child (that's all the money they have available, no more). The couple has two 529 accounts -- they each own one, with child as beneficiary for both. This is because the state they are in gives state tax deductions on a per-account, not per-beneficiary basis, and permits carry-over of amounts over the state deduction limit to the next year. (E.g., Virginia: https://keitercpa.com/blog/view/529-pla ... ncentives/)

The couple could just give a $37,500 gift to each child and spread that gift tax out over five years. However, the couple would like to have one spouse give the maximum $75,000, so that the other parent can still make gifts up to the annual gift tax threshold over the next five years. However, to do this, the one spouse would want to place 1/2 of the gift in the account owned by the other spouse. Otherwise, it will take twice as long to fully deduct the $75,000 gift on state taxes, because they can only deduct annually the state deduction limit on one account, not two.

Is this okay? On its face, it seems to be from reading the IRS guidance on the subject. The IRS instructions for form 709 (gift tax return) indicate that the concern is over how much is gifted "on behalf of" and "for the benefit of" the individual. The actual IRS regulation also concern the "beneficiary" (see 26 U.S.C. s 529(c)(2): https://www.law.cornell.edu/uscode/text/26/529). The account owner doesn't seem to matter.

Would welcome any thoughts, especially of someone who has been through this thicket. Thanks!

peseta

Spirit Rider
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Re: 529: Can someone use 5-year gift tax averaging to contribute in part to account owned by spouse (same beneficiary)?

Post by Spirit Rider » Sat May 25, 2019 10:09 pm

Each spouse can gift 5X (2019 = $75K) the annual exclusion ($15K) amount to the child. It does not matter which account the contribution goes to or whether it is split across the two accounts. It will also not matter whether you one of you contribute the full $75K lump sum and the other up to $15K/year.

Also, you could each contribute a lump sum of $37,500 in 2009, file Form 709 and elect 5-year treatment ($7500/year) and make up to the current annual exclusion - $7500 for 2020 - 2023.

Topic Author
peseta
Posts: 116
Joined: Mon Mar 09, 2015 11:40 pm

Re: 529: Can someone use 5-year gift tax averaging to contribute in part to account owned by spouse (same beneficiary)?

Post by peseta » Sun May 26, 2019 8:15 pm

Spirit Rider wrote:
Sat May 25, 2019 10:09 pm
Also, you could each contribute a lump sum of $37,500 in 2009, file Form 709 and elect 5-year treatment ($7500/year) and make up to the current annual exclusion - $7500 for 2020 - 2023.
Thanks for all the great advice! It didn't even occur to me that I could still take the part of the annual exclusion I didn't "use" with the 5-year tax averaging.

peseta

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