Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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How much total could a couple contribute to a 529 Plan for a grandchild without incurring gift tax?

$130,000
$65,000
$30,000
$15,000

The correct answer is: $130,000

The correct answer reflects the use of a special gift tax exclusion available for contributions to a 529 Plan. Under IRS rules, individuals can contribute up to a specified annual exclusion amount per beneficiary without incurring gift tax. As of 2023, this annual exclusion amount is $17,000 per person, which means a couple could potentially contribute $34,000 in a year (since both spouses can utilize their individual exclusion amounts). Additionally, there is a provision for 529 Plans that allows contributors to front-load contributions. This means that instead of spreading the total over several years, they can contribute a lump sum equivalent to five years' worth of the annual exclusion without triggering gift taxes. For a couple, this amounts to $170,000 (5 years × $34,000). However, if they were to front-load and use the five-year election, they can only do so in a single year for the entire amount without exceeding the limit, which is why it's crucial to align contributions effectively within these guidelines. Hence, if we consider only the couple's contribution without any additional layers (such as front-loading and without gift splitting), the couple could give up to $130,000 by utilizing the special provisions for contributions to a 529 Plan.