One advantage of gifting to a 529 college savings plan is that five years’ worth of gifts can be made in one year. With the annual gift exclusion at $15,000 for 2020, a taxpayer can gift up to $75,000 at one time to a 529 plan – double if the gift comes from a couple. A little known fact is that you can make retroactive contributions to a plan and still have those count after December 31, so if you’re considering this, you may want to wait until early 2021. That would allow you to still contribute $15,000 to the 529 for 2020 before doing the 2021 through 2025 gifts next year.
Funding a Coverdell Education Savings Account can also provide tax-free income for education expenses. You can contribute up to $2,000 per year per beneficiary under 18 years old for both college and K-12 expenses. Contributions are limited to married couples with Modified AGI below $220,000 ($110,000 for singles).
Given all the changes, this promises to be a complicated tax year for many people. While Baird does not offer tax or legal advice, our Financial Advisors regularly work with clients’ attorneys and tax professionals to help ensure that all aspects of wealth management are addressed, and can help you sort out which strategies are right for you. For more information, see our guide to Tax Planning.