29th Apr 2021 by Henry Findlater

New Tax Year: 529 Contributions


For those clients with a US UK nexus, any planning undertaken from 6th April 2021 through to the end of 2021 will be done in the same US UK tax year, avoiding a potentially complicated mismatch. With this in mind, we thought a brief Spring clean of some financial planning thoughts might be valuable for our readers. Therefore, we have provided a series of three blogs on three different tax considerations that we hope you will find useful. The third and final, detailed below, is on 529 contributions.

As you think about how to direct your savings during 2021, you should consider whether any additional contributions to your existing 529 plans would be beneficial. 

As part of your overall planning, and specifically any education funding objectives, it is useful to periodically review 529 plan balances against projected education expenses to ensure that you are on track to meet any future requirements. 

Should additional funding be required, you should consider utilising your annual gifting allowance of $15,000 towards an additional contribution before the end of the US calendar year. 

Remember - contributions to 529 plans are considered gifts under the federal gift tax regulations and the current 2021 gifting allowance per individual is $15,000. It should be noted that up to five years of annual gifting allowance can be used to fund a 529 in a single lump sum without any gifting implications for US purposes. This means that one can make a single contribution of up to $75,000. Any contributions in excess of any available gifting allowances will go towards an individual’s US lifetime gift and estate allowance.   

Equally, it can also be important to consider the 529 plan balances to ensure you are not overfunding the plans. As a reminder, if distributions do not go toward qualified education expenses (and do not meet one of the exceptions), the distributions will be subject to federal income tax and an additional 10% penalty on the gains earned above the original contributions.  

If you have any questions or would like to make a contribution to your existing 529 plan, please contact your Wealth Manager.

Note: We understand that these considerations may not apply to all individuals. Should you have any questions then please contact your MASECO wealth manager to discuss these thoughts in greater detail, to ensure any action taken is suitable for each unique client situation.

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