529 contributions

[tncao66]

1. My wife and I filed the married joint federal returns. We contributed a total of $ 190,000 from 2020 to 2025 for my daughter's college education. Do we need to file the gift tax return for 2024 if the total amount contributed exceeded $190,000? If the amount was exceeded more than $190,000 in 5 years, which form we need to file for the excess amount toward her gift tax? 

2. I did not receive 1099-Q form since my daughter is the beneficiary of the 529 plans.  She received the form 1099-Q for the qualified education expenses. Her earned income was $1,540 in 2024. The 529 withdrawals have been used to pay directly to the university for her qualified education expenses. Does she need to file her income tax return with Federal and State in California? 

[AmyC · Accepted solution]

1. Yes, for more see 5-year gift-tax averaging. Form 709 is used for the gift tax. See The Gift Tax Made Simple.

2. If all of the 529 went to room and board and eligible expenses, then she has no excess for tax liability. Her earned income is below the filing threshold.

[Hal_Al · Accepted solution]

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records (you don’t need it). You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. 

References:

1. On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 
2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
3. "IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc; then, you do not need to enter the form." 

[tncao66]

Hi Amy C!

Thank you so much for your response. We have additional questions about 529 contributions. If my daughter pursues further education in the graduate programs, we have two questions below:

a. Does the money contribution exceeded than $190,000 exempt us from the federal gift tax if we contribute to her 529 account after the year 2025? 

b. Are there any upper limits of the amount that we or her relatives can contribute to our daughter's 529 account to avoid filling for the federal gift tax? We are currently live in California.

Again, thank you so much for your assistance and advice.

Sincerely,

[tncao66]

Hi Amy C!

We contributed to our daughter 529 plans with the amount of $157,000 exceeded the annual exclusion of the amount $36,000 in 2024. We have 2 more questions:

a. At what point in Turbo Tax that we can enter the information into form 709 with Federal return? for example (wages & income, deductions & credits, other tax situations)

b. Since we filed married joint return, does my wife need to file a separate IRS form 709 gift tax return because we contributed more than $36,000 in the year 2024? 

Thank you so much for your time and your expertise.

Sincerely,