Gift to 529 from foreign GP

Personal Finances Getting A Child Into College
1

Hi All - wondering if the community can help me answer these. I have a state 529 set up for my child, and their grandparent would like to gift money for tuition purposes. The grandparent lives outside the US. They will not have any tax benefits by doing this since it outside the country, but want to give them a decent education.

Questions…

  1. Is there a maximum they could gift to the child? Seems like there is no limit to fund the 529.
  2. Will I (as the account owner or custodian) have to report and pay any tax on this?
  3. Can the GP give me, the account owner, the money to add to the child’s 529 instead?

Thanks in Advance.
'prince

2

bobloblaw: Questions…
1. Is there a maximum they could gift to the child? Seems like there is no limit to fund the 529.
2. Will I (as the account owner or custodian) have to report and pay any tax on this?
3. Can the GP give me, the account owner, the money to add to the child’s 529 instead?

  1. Not that I am aware of, but I am no expert. Check your 529 plan documents, there may be a plan limitation on annual contributions and/or an aggregate maximum amount of contributions.

  2. On the gift, I do not believe so, but again I am no expert. Once the money is in the 529 you may owe taxes if it is withdrawn and not used for “qualified education expenses”.

  3. Yes, if they trust you to actually contribute it to the 529 plan (no offense intended, but not all parents are good or trustworthy). Assuming that you are a USA citizen or resident, you will have the annual gift tax exclusion and possibility of needing to file a gift tax return for amounts over that annual limit. The last time I looked, several years ago, there was a special tax code provision that allowed bunching 5 years of the annual limit amount for a contribution to a 529 plan, but there was some kind of tax filing/ election that needed to be made and doing so fully meant no other gifts (e.g., birthday, Xmas, etc.) could be made during those 5 years or a gift tax filing would be due. I am unsure whether that is still available to you.

Joe Hurley, who started the SavingforCollege website (and was a poster on TMF boards ages ago) was generally a good source when I was most interested. I am more than a few years out of date on my knowledge.

Regards, JAFO

PS - the Tax board is good for tax questions

3

I believe the maximum amount you can receive tax free as a gift from someone is $14,000. I do not know if that is impacted by someone from outside the USA. There is no max contribution limit, so you could contribute the full amount to the plan and take full advantage of the tax benefits as a US resident.

Fuskie
Who would suggest talking with a tax or financial advisor to make sure you know how to dot all the i’s and cross all the t’s…

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4

This might be a question for the Paying For College board.
https://discussion.fool.com/paying-for-college-100157.aspx?mid=3…

But meanwhile, I’ll give it a shot:

The grandparent lives outside the US…1. Is there a maximum they could gift to the child? Seems like there is no limit to fund the 529.
If the grandparent is a US citizen, they’re subject to US tax laws regardless of where they live.
From https://www.savingforcollege.com/article/maximum-529-plan-co… (If link doesn’t work, put “maximum contribution” into the search field of savingforcollege.com)
Each state has a maximum aggregate contribution limit per beneficiary. Aggregate 529 plans limits apply to all 529 plans administered by a specific state and range from $235,000 to $550,000…
529 plans do not have annual contribution limits. However, contributions to a 529 plan are considered completed gifts for federal tax purposes, and in 2022 up to $16,000 per donor, per beneficiary qualifies for the annual gift tax exclusion.
Also see https://www.irs.gov/businesses/small-businesses-self-employe… (If link doesn’t work, put “frequently asked questions on gift taxes” into the search field of irs.gov)

2. Will I (as the account owner or custodian) have to report and pay any tax on this?
No.

3. Can the GP give me, the account owner, the money to add to the child’s 529 instead?
GP can do both; i.e., contribute $16k directly to the 529, and give you $16k for you to contribute to the 529. If you’re married, GP give you and your wife each $16k to contribute to the 529.

Regarding tax benefits of contributions:

  • At the Federal level, there are no tax deductions. The advantage of the 529 is that gains accrue tax-free, and remain tax-free if withdrawn for qualified purposes.
  • At the State level, there might be tax deductions. Check with your state regarding limits on the amounts, and whether the 529 has to be one that’s administered by the state of residence.
    For example, my grandson, son, and I all live in the same state, and it allows a $6,000 tax deduction on 529 contributions. I’ve allocated $20k/yr for 529 contributions. Rather than contribute $20k directly, I contribute $14k directly and give my son $6k to contribute, so that we each get the $6k state tax deduction. (I receive no tax benefit from the $8k contribution over the $6k deductible amount.)
    Notes: Son isn’t contributing from his own funds (yet). Also, splitting my contribution keeps it under the gift tax exclusion amount for an individual, but since I’m married my limit is $32k so it doesn’t matter anyway.

HTH

5

My bad, I thought the gift limit was still $14k.

Fuskie
Who notes the grandparents can not only double their contribution by gifting both the child’s parents, but they can do so in consecutive years to increase their financial support…

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6

Thanks all for the comprehensive replies! This was more that I was expecting since it didn’t look like this thread was active. I will take some time to read the links.

I thought it was $16k per year as you said, but did not see if this was per child. Also GP is not a US Citizen so not tax benefits would apply to him except in his home country.

7

@YewGuise I did see the info on gifts at the link on the IRS website but it is in a section relating to “Small business self employee” so I wasn’t sure if this applied to individuals.

8

This - https://discussion.fool.com/paying-for-college-100157.aspx?mid=3… and the tax board could be better places to look.

If the donor is not concerned about tax benefits in the US, you may need to look at
https://www.irs.gov/businesses/gifts-from-foreign-person

and that brings you to another wrinkle - the qualified tuition payment information.

9

I thought it was $16k per year as you said, but did not see if this was per child.

It is per individual, adult or child. So technically, grandparents could donate up to $48k towards a child’s 529 plan, $16k to each parent and $16k to the child, then all three would contribute to the 529 plan. However, given that a child usually pays no taxes, any tax advantages would be wasted.

It is also possible for grandparents or non-family members as well to contribute to a 529 plan independent of gifts to others, though I believe OP mentioned the grands were prevented from doing so because they were not US citizens.

It is possible for a child to own their own 529 plan, but that usually does not happen because it would count against their eligibility for financial aid.

https://www.westernsouthern.com/learn/financial-education/wh…

Here’s another useful article:

https://www.westernsouthern.com/learn/financial-education/wh…

Fuskie
Who believes there is also a provision where 5 years worth of cash gifts can be made in a single year, with the amount gifted spread over 5 years for tax purposes…

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