What are the estate tax benefits of 529 Plans?

Contributions to a 529 Plan are generally considered completed gifts to the student and may be contributed, up to federal gift tax limits, to a plan without being subject to federal gift tax on the contributor(s). Such contributions are not included in the contributors’ estate for federal estate tax purposes.

Federal tax law does allow an individual to contribute in excess of the annual gift tax limit by treating certain contributions as if they were made over a five-year period. These contributions are not included in the contributors’ estate for federal estate tax purposes. However, this approach requires filing a gift tax return and, if the contributor dies before the end of the five-year period, the portion of the contribution allocable to the remaining years in the five-year period will be included in the contributor’s gross estate for federal estate tax purposes. The IRS has established lifetime exclusions such that no gift tax will be due until the lifetime exemptions have been used.

For specific information about your situation, please consult an investment adviser or certified public accountant.