Back to the Future Exclusion

The Internal Revenue Code’s annual gift tax exclusion allows you to give up to $15,000 per year to any donee without having to worry about paying a gift tax.  See Rev. Proc. 2018-57.  But did you know that by giving to a qualified tuition program (i.e., a 529 plan), you can give more than $15,000 without exceeding the annual gift tax exclusion?

Section 529 of the IRC allows a donor to give to 529 plans in excess of the $15,000 annual exclusion, and account for the gift over a period of five years.  For example, you could give $75,000 to a 529 in 2019, and elect to account for the gift ratably over a five-year period, treating the $75,000 gift as five $15,000 gifts over the five-year period of 2019 through 2023.  This allows for a swifter, more significant reduction of one’s estate, without exceeding the annual gift tax exclusion amount ($15,000).  (Note, however, giving additional gifts to the same donee during the same five-year period may require utilizing the lifetime exemption.)