Frequently Asked Questions
Who is eligible for the 529 Plan 5-Year Gift Averaging?
Donors making large lump-sum contributions to a 529 plan exceeding the annual gift tax exclusion.
How does the 529 Plan 5-Year Gift Averaging work?
Allows a donor to contribute up to five times the annual gift tax exclusion amount in a single year and elect to treat it as spread over five years for gift tax purposes.
What law authorizes the 529 Plan 5-Year Gift Averaging?
The 529 Plan 5-Year Gift Averaging is authorized under IRC §529(c)(2)(B) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §529
Source: Internal Revenue Code, Title 26, United States Code
§ 529. Qualified tuition programs(a) General ruleA qualified tuition program shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, such program shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations).
(b) Qualified tuition programFor purposes of this section—(1) In generalThe term “qualified tuition program” means a program established and maintained by a State or agency or instrumentality thereof or by 1 or more eligible educational institutions—(A) under which a person—(i) may purchase tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to the waiver or payment of qualified higher education expenses of the beneficiary, or
(ii) in the case of a program established and maintained by a State or agency or instrumentality thereof, may make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account, and
(B) which meets the other requirements of this subsection.
Except to the extent provided in regulations, a program established and maintained by 1 or more eligible educational institutions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements for a qualified tuition program. For purposes of the preceding sentence, the term “qualified trust” means a trust which is created or organized in the United States for the exclusive benefit of designated beneficiaries and with respect to which the requirements of paragraphs (2) and (5) of section 408(a) are met.
(2) Cash contributionsA program shall not be treated as a qualified tuition program unless it provides that purchases or contributions may only be made in cash.
(3) Separate accountingA program shall not be treated as a qualified tuition program unless it provides separate accounting for each designated beneficiary.
(4) Limited investment directionA program shall not be treated as a qualified tuition program unless it provides that any contributor to, or designated beneficiary under, such program may, directly or indirectly, direct the investment of any contributions to the program (or any earnings thereon) no more than 2 times in any calendar year.
(5) No pledging of interest as securityA program shall not be treated as a qualified tuition program if it allows any interest in the program or any portion thereof to be used as security for a loan.
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