You may consider saving for your child’s or grandchild’s college education. According to Business Insider, the average tuition for a state college in Illinois is almost $15,000 per year. But you may not want to simply give your child the tuition money since it may be subject to a gift tax. One option is to set up a tax code 529 plan.
An IRS code 529 plan (Qualified Tuition Program) offers a way to save for education expenses and not be required to pay taxes on this amount. There are two types of plans:
Most US colleges and universities accept both plans. But with the help of your estate attorney, you will need to decide which is best for you.
A gift tax is a tax on transferring property from one person to another without receiving anything in return. You can gift your child money, but you may be taxed on it. While Illinois has no gift tax threshold, there is a federal one. As of 2023, each parent can gift a child up to $17,000 per year ($34,000 for the couple) without it being taxed. Any amount over the exempt amount and the person giving the monetary gift must pay taxes.
So how do the 529 plan and gift tax exclusions work together?
Contributions made to a 529 plan may qualify for the gift tax annual exclusion. This means you can add up to $17,000 (or $36,000 if you’re a married couple) to the 529 plan and still qualify for the tax exemption.
Finding the best way to save for your child’s college education can be confusing. When you work with an estate planning attorney, they will go over all options with you, and together you can pick the right plan for your situation.
Gifting contributions to a 529 plan to provide for your children’s or grandchildren’s education is an investment in their future. Do you have questions about gift taxes and estate planning? Our experienced lawyers can advise you on the best options to protect your assets and loved ones. Contact the Estate & Probate Legal Group at 630-864-5835 to talk to an estate planning attorney.
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