#collegesavings

Superfunding a 529 College Account

529 College Savings Plans are tax-advantaged education-savings accounts.  Federal tax rules allow an account owner to give up to $15,000 a year ($30,000 for married couples) to a child without incurring a gift tax. However, there is a unique provision to employ a “superfunding” strategy by front-loading your 529 contributions without triggering gift taxes. Here’s how superfunding works:

By employing the superfund strategy, you can put six years of contributions ($75,000 for single or $150,000 for a married couple) into your 529 accounts in one year by electing to treat the contribution as if it were made in equal installments over five years.

If you want to use the superfund strategy, in only a few months you can contribute $90,000 ($180,000 for a married couple) to the 529 account tax-free:

  • Make a one-year gift to the beneficiary using the allowance of $15,000 by the end of this tax calendar year (2020).
  • Utilize the 5-year gift allowance of $75,000 at the start of the next tax calendar year (2021).

You would need to note this on IRS Form 709. Any additional contributions from the account owner above this amount to the beneficiary during the five-year period would trigger gift taxes. Although such contributions are considered completed gifts, the account owner retains control of those contributions—and the account balance is not included as part of his or her estate.

Check out our webinar “A Definitive Guide for Education Planning” to learn about the best ways to save for college.

Money Mastery Webinar Series OnDemand

If you missed our Money Mastery webinar series or just want to revisit any portion of the series given by our CERTIFIED FINANCIAL PLANNER(CFP®) professionals, the replays are now available OnDemand by clicking the links below.

Connecting the Dots to Your Financial Future (Part 1) – Learn the importance of creating a budget, strategies to pay down debt, and tips to build and maintain good credit.

Connecting the Dots to Your Financial Future (Part 2) – Create healthy financial habits and learn about the keys to investment success.

A Definitive Guide for Education Planning – Understand your options with student loans and learn about the best ways to save for college and maximize student aid.