Recent tax reform passed loosened rules for funding 529 college-savings accounts, including allowing the funds to be used for grades school and high school costs and giving the ability to roll 529 assets into other kinds of plans. This can mean significant chances for nigh-net-worth clients to help younger family members financially.

“The old law only allowed for higher education. This can give more opportunities for high-net-worth grandparents and great-grandparents,” said Lawrence Pon, a CPA/PFS and CFP at Pon & Associates in Redwood City, Calif. Grandparents can start to fund a 529 when a child is born, perhaps moving the money around for different grandchildren’s education, he said.

Though many Americans surveyed remain unaware of 529 plans, the number of accounts opened and the average size of accounts have increased, according to a recent report from the College Savings Plan Network (CSPN).

The annual contribution limits are tied to the gift tax limit, which is $15,000 for 2018 (up to $30,000 for a married couple making a split-gift election). “These limits would probably not come into play for contributions made by a parent to an account benefitting a minor child since that parent has a legal obligation of support and this transfer would not be considered a gift for gift tax purposes," said Michael Repak, a senior estate planner at Janney Montgomery Scott in Philadelphia.

Tami Noll Russo, a CPA/CFP with Noll Financial Services in Middletown, Pa., noted that tax reform tweaked other savings plans, such as 529A ABLE accounts. “The TCJA allows annual $15,000 rollovers from a non-ABLE 529 to a 529ABLE,” she said.

“The designated beneficiary can also make annual contributions from earned income of up to the lessor of the federal poverty line for one person ($12,060 for 2018) or 100 percent of compensation. Distributions can now be used for up to $10,000 of annual elementary and secondary school expenses,” Russo said.

“This provision now allows a disabled person to work without the fear of lost income,” added Rich Engler, a CPA with Bigelow & Co. in Manchester, N.H. “The TCJA has also allowed for tax-free rollovers from a 529 to an ABLE plan as long as the designated beneficiary of the ABLE plan is the same or a family member of the designated beneficiary of the 529 plan.”

The rollover must be made within 60 days of the distribution from the 529 plan. The amount rolled over can be included in the ABLE account contribution limit for the tax year.

A little-known provision in the tax code, Sec 2503(e), provides that transfers made directly to the providers of education for tuition are not considered gifts for gift tax purposes. “If the grandparents want to pay tuition directly to a school for their grandchild, they could do that without limitation and without impacting their ability to make further gifts,” Repak said.

HNW clients are also in a good position "to give five years worth of contributions at once without filing a gift tax return—$75,000 per person or $150,000 from a joint account,” said Russo. “These limits are before you’re required to file a gift tax return. No tax would be due until you exceed the lifetime estate and gift tax exemption of $5.6 million (for 2018). Most people work under the erroneous assumption that tax is due after the $15,000.”

State income taxes are another factor in contributions. Many states allow an income tax deduction for contributions made to a 529.

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