When you make a gift to a grandchild, niece, nephew...even a friend’s child, you do it because you want to see them succeed. But that doesn’t mean you shouldn’t enjoy the specific tax advantages offered with the Oklahoma 529 College Savings Plan (OCSP). Learn why there’s more than one reason to make a gift contribution to a 529 plan. Consult your tax advisor.
How OCSP helps with Your Estate Planning
First, the cut and dry facts about the tax advantages and how your gift contribution will be treated:
- There’s no federal gift tax on contributions you make up to $15,000 per year if you’re a single filer, or $30,000 if you’re a married couple.
- You can also accelerate your gifting with a lump sum gift of $75,000 if you’re a single filer or $150,000 if you’re married and pro-rate the gift over 5 years with the federal gift tax exclusion.
- OCSP accounts are not subject to the ‘Kiddie Tax’.
- You can gift this amount to as many individuals or beneficiaries as you like, free from income tax.
What a Completed Gift for Federal Gift and Estate Tax Purposes Means to You
As you might already know, if your estate exceeds the exempt amount, estate taxes can be quite high — in some cases more than 40%. Since contributions to OCSP are considered a completed gift for federal gift and estate tax purposes, it’s removed from your estate, and can help reduce your future estate tax exposure. Plus, you can do this without incurring the federal gift tax as long as your contribution is within the current exclusion limits, as noted in the section above, whether you make your gift annually or in a lump sum on a 5-year accelerated schedule. This holds true whether you’re the account owner or simply a contributor. If you are going to give a gift anyway, you can not only feel good about helping to fund a student’s education, you can feel good about taking advantage of the gift and estate tax planning benefits.
Even if your estate is within the exempt amount for Estate Tax purposes, it’s still easier to give loved ones their ‘inheritance’ while you’re alive. It’s a fairly common legacy planning strategy. With OCSP, you can give this money to a special person in your life with the confidence to know it’s intended to help them with their education.
All that said, it’s worth noting, if you’re a grandparent, this contribution might still be subject to the Generation Skipping Transfer Tax. However, there is a $3.5 million exemption before this tax kicks in, so this won’t affect you until you’ve used up that exemption.
Ultimately, federal tax law is complex and there are state and local taxes to consider, as well as your life situation and other circumstances that can factor in. While the many tax advantages associated with OCSP can be an important part of your financial planning process, you may want to consult with your banker, tax consultant or trusted financial professional to get a full understanding of how these benefits affect your estate.