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529 Gifting Thumbnail

529 Gifting

As we emerged from the Thanksgiving holiday and returned to the office this week, many admitted to arriving early or staying late to scour the internet for the best Cyber Monday deals. The results are in & Amazon along with many other online retailers claimed this as the most successful Cyber Monday in history – early estimates by Adobe Analytics expects sales of $7.9 billion1.  Keep in mind, this number doesn’t include sales from Thanksgiving Day, Black Friday and the weekend leading up to Cyber Monday!

While those numbers are mind-boggling, I couldn’t help but thinking of Peyton Manning in his recent campaign with Nationwide. In the latest commercial, he stands beside country-singer, Brad Paisley.  He and Brad are watching a baby shower in the distance – Peyton jokes, “I bet it’s a Life Insurance Policy” to which Brad Paisley shakes his head confused.  The gift: baby booties.  Peyton is visibly disappointed, after all, the life insurance would’ve been way more “sensible”. 

I felt the same way a few years ago as I was desperately seeking the best gift for my new nephew.   According to my sister, he already had too much of everything: clothes, toys - which frankly, he’d be growing out of most of it within 6 months anyway.  While I wanted the instant gratification of seeing him in a new winter toque or a baby parka that I’d picked out, I ultimately decided to go a different avenue completely.  I decided to give the gift of education.

If by chance the weekend escaped you & you’re still in the market for gifts, you might consider what I did: gifting to a 529 on behalf of my nephew.  While it may not be 50-60% off today, your gift is sure to be remembered down the road. 

Below are 5 surprising perks you should be aware of when you gift a 529:

* Depending on the state you live, your contribution to a 529 plan may entitle you to an in-state tax deduction or credit. Here in Ohio, the state recently doubled the deduction to 4k per beneficiary per year. Should an OH resident make a gift in excess of 4k, they would be eligible to carry-forward that deduction into future years.Our neighbors in PA can gift up to the Federal gifting limit per bene and deduct the entire amount from their state income – regardless of the plan they choose.2 Ultimately, you get a gift for making a gift!

* In addition to the deduction eligibility above, 529s are one of the rare vehicles that grow federally tax-free and distributions are also tax-free when used for qualified educational costs.Better yet, 529s are considered completed gifts in the year they were made (so long as they do not exceed the Federal gifting limits) – this means they cannot be pulled back into your estate for probate purposes after your passing.

* 529s are not just for traditional 2 or 4-yr public or private colleges. There are hundreds of vocational schools & beauty schools that also qualify.  There are even schools overseas! So long as the school is considered an accredited university by the US Department of Education, 529 savings can be used tax-free at that institution. A complete list of eligible schools is available at https://www.ed.gov/accreditation      

* Traditionally, 529s were strictly for post-secondary schooling. Earlier this year, legislation allowed for 529 savings to be used for k-12 education expenses. The decision is still being reviewed in some states, but here in OH, you can now leverage up to 10k per year per beneficiary for private k-12 schooling.3

* Finally, if you are named as the Account Owner, only YOU have control over the gift down the road. While a 529 is a completed gift for tax purposes, it is not considered an irrevocable gift. The beneficiary will never have access to the funds unless you request a distribution on their behalf. If there is ever doubt that they’ll use the funds as you intended, you also have the option to change the beneficiary on the 529 – the only caveat is that they must be related to the current beneficiary: brother, sister, aunt/uncle, cousin, parents, etc. As a last resort, distributions can always be made for non-qualified purposes, but you will be subject to tax and penalty on the earnings portion of the distribution.

As educational costs continue to rise, this is sure to be an impactful and memorable gift. If you have any questions about your specific deduction eligibility & potential benefits outlined above, give us a call. 

1. Source: https://www.cnbc.com/2018/11/27/cyber-monday-sales-break-record-a-record-7point9-billion-spent-online.html

 2.Source: PA Deduction: https://www.savingforcollege.com/529-plans/pennsylvania/pennsylvania-529-investment-plan

 3. Source: https://www.dispatch.com/business/20180212/ohio-families-can-now-spend-529-savings-on-k-12-schooling

 4. IRS FAQ: https://www.irs.gov/newsroom/529-plans-questions-and-answers

(Tax benefits, Account Ownership/Control features, Bene changes and Non-qualified distributions)


LPL Financial and its representatives do not provide legal or tax advice. This information should not be construed as legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.

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