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  • super-super-funding a 529

    Hi!
    I'm aware of the ability to superfund a 529 (75/150k over 5 years) and that if you go above that you will have to file a gift tax and it counts to your lifetime gift tax exclusion. My question is, is it ever worth it to overfund it anyway? Does the benefit of putting tons of money into a 529 early outweigh the potential estate tax that most physicians won't reach?

  • #2
    Perhaps, but there are many variables. You need to have a plan in place to compare the projected results of working toward overlapping goals.

    So, to answer your question, ‘... is it ever worth it to overfund...?’ (emphasis added), my answer would be yes, in some situations. But that doesn’t mean it is for you. Also note that the $15k/donor/donee/year is also reduced by other gifts to the child, so it’s possible to contribute what appears to be the absolute max and still eat into your lifetime exclusion.

    Also note that you must file an annual gift tax return when you frontload your 529s.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      It depends on how you plan to use the 529. Don't forget it can be used for PK-12 private school education and to pay off student loans.

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      • #4
        Estate tax exemption will be cut in half in 2026 and tax law changes could certainly lower it further. I think most of the regulars here will face federal estate tax liability after 2026.

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        • #5
          Thank you everyone!

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          • #6
            Why would you need to put so much money into a 529?

            Remember this is per individual. So if you are funding for multiple kids you can put in 150 for each every 5 years.

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            • #7
              In my state I can take a $10k state income tax deduction and I don't believe there is a carry forward deduction for superfunding. In this scenario, would superfunding be worth losing future deductions (possibly 4 years worth)?

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              • #8
                If your 529 is overfunded, you can carry it forward to the next generation. The administrative executive of my state's 529 states that is what he is doing.

                and RE: potential drop in unified gift/estate exclusion: isn't that what trusts are for?

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                • #9
                  Originally posted by jz- View Post
                  If your 529 is overfunded, you can carry it forward to the next generation. The administrative executive of my state's 529 states that is what he is doing.

                  and RE: potential drop in unified gift/estate exclusion: isn't that what trusts are for?
                  We will have federal and already have state estate tax exposure even with trusts. Would have to talk irrevocable trusts like ILITs to overcome that. In general RLTs don't avoid estate taxes at your death, they can preserve portability if your state law does not allow it and help with future generations.

                  How many folks have made gifts to 529s owned by irrevocable trusts?

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                  • #10
                    Originally posted by Lordosis View Post
                    Why would you need to put so much money into a 529?
                    To get more tax-free growth, especially for clients who have reached other goals (ex, paying off SLs) and are accumulating cash. In states that allow deductions to carry over, it can especially make sense for that reason. Also for estate planning purposes for those who not only are high income/low spenders, but will receive an inheritance. Get the principle out of estate + any future growth. One couple in particular comes to mind - dual doctors, one is only child of doctor parent who is aggressively funneling their estate to the child (client) and grandchildren. They also had a recent windfall, so we’re challenged with the best use of all of these funds.

                    We help another doctor in that category, just a few years behind, but thinking ahead for sure.
                    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                    • #11
                      Wait, there are limits to how much you can put in a 529 each year? To this point we have only done 4k/kid/year but were planning to significantly increase that amount in the next 3 years to catch up. Can someone clarify what the limits are?

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                      • #12
                        Originally posted by wideopenspaces View Post
                        Wait, there are limits to how much you can put in a 529 each year? To this point we have only done 4k/kid/year but were planning to significantly increase that amount in the next 3 years to catch up. Can someone clarify what the limits are?
                        15k per parent per year to stay under gift tax limit or up to 5 years at once and fill out a form 709. honestly, if 4k for a few years plus superfunding doesn't cover it...I'm voting for Bernie to pay for it. oh wait, the higher order proletariat like us will *still* be paying for it....

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                        • #13
                          Originally posted by jfoxcpacfp View Post
                          Also note that you must file an annual gift tax return when you frontload your 529s.
                          Is this mandatory or is it just something that is a good idea to do?

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                          • #14
                            Originally posted by G View Post

                            15k per parent per year to stay under gift tax limit or up to 5 years at once and fill out a form 709. honestly, if 4k for a few years plus superfunding doesn't cover it...I'm voting for Bernie to pay for it. oh wait, the higher order proletariat like us will *still* be paying for it....
                            Thank you! That's good to know. I'm lazy so I'll keep it at 30k/year rather than doing the 50k/year I was planning. We got a late start with my 12 yo and only started his when he was 7, I think. My 4 yo is in better shape and will need less "super funding".

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                            • #15
                              I thought superfunding referred to a lump sum such as 150k all at once (2 parent limit at 30k x 5 years) as opposed to maxing (30k/yr in this scenario).

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