Many people know the $15,000 limit with regard to gift taxes: Gifts from an individual to a non-spouse are limited to $15,000 before gift taxes are triggered. If you’re married, you can give up to $30,000 to another individual without gift taxes, as this amount is assumed to be split between you and your spouse. Because contributing to a 529 plan for your child is considered a completed gift, you’ll need to be aware of these limits. Once money is in the 529 plan, you’re able to select an investment asset allocation to allow for growth over time.
You can contribute more than $15,000
529 plans, uniquely, also allow you to make a five-year election that treats your contribution as if it were made over five years. In other words, if you contribute $150,000 in the year your child is born, this can be treated as if you and your spouse each contributed $30,000 to the plan for the current year and each of the next four. This allows you to avoid federal gift taxes by adhering to the prescribed limits, and also will likely produce some state tax benefit which will vary by your state of residence.
Know how to exit gracefully
Historically, it’s been a baseline assumption that going to college is a necessary experience of young adult life. The next several decades could potentially be different. With the advent of online learning and wide availability of entrepreneurial opportunity, I don’t consider college to be a default option for all young people. It stands to reason that many will still opt for college, and many certainly should — but there are also going to be increasing opportunities to take nontraditional paths that are entirely legitimate and profit-producing.