23 June 2022 17:50

Can I deduct 529 college savings plan contribution from California income tax as a gift?

As with other 529 plans, the California 529 plan allows individuals to contribute up to a certain amount per year per account without triggering any federal gift taxes or using any of your lifetime gift tax exclusion amount.

Are 529 gifts tax deductible in California?

While contributions are not deductible for California income tax purposes, earnings accrue free of state income tax. Any withdrawals used for qualified higher education expenses and outgoing rollovers to other qualified 529 plans and 529A ABLE accounts are also state tax free.

Are contributions to a 529 plan considered gifts?

One of the many benefits of saving for a child’s future college education with a 529 plan is that contributions are considered gifts for tax purposes. In 2022, gifts totaling up to $16,000 per individual will qualify for the annual gift tax exclusion, up from $15,-2021.

Can a grandparent contribute to a 529 plan and claim a tax deduction in California?

Yes, grandparents can claim the deduction for contributing to a 529 if they live in one of the 34 states that offer a state income tax deduction for 529 college-savings plan contributions. The only question is whether you must own the account or whether you can contribute to one set up by, say, the child’s parents.

How do I report 529 contributions to a gift tax return?

Once you gift over the annual exclusion amount, even if no tax consequences follow, you must complete your IRS Form 709. You will make the election to spread the 529 plan gift over 5 years by checking Form 709, Schedule A, box B. Then you must attach an explanation.

Which states let you deduct 529 contributions?

Many states offer state income tax deductions or credits for contributions to a 529 plan.
States that offer an income tax benefit for 529 plan contributions

  • Arizona.
  • Arkansas.
  • Kansas.
  • Minnesota.
  • Missouri.
  • Montana.
  • Pennsylvania.

Can I deduct 529 contributions to another state?

Every state allows a rollover to another 529 plan once per year with no tax consequences, but several states will charge for transferring an account or recapture state tax deductions when moving from an in-state to an out-of-state plan. Thirty-four states offer tax deductible plans to their residents.

Does it matter what state your 529 plan is in?

No you don’t have to use your own state’s 529 plan. Very few states will prevent you from using their 529 plans no matter where you live, which means you can shop among just about all the different plans.