State of IL 529 account deductions

[PCD21]

For each contribution to a 529 account (Bright Start in IL) IL's Schedule M asks whether the contribution is a gift or not.  What are the consequences of answering yes or no?

In our situation my wife and I set up 529s for the first time for two of our grandchildren and then contributed the maximum amounts.  This sounds like a gift to me.  But what are the consequences if any of checking the gift box?

[KrisD15 · Accepted solution]

This indicates that the contribution was not rolled over from a different 529 account and therefore is eligible for the annual gift tax exclusion. 

Funds rolled over from another 529 savings account would not be eligible for the credit since the credit would have been applied when the original account was established. 

There is also an opportunity to contribute as much as $85,000 as a gift and bypass federal gift tax.

According to BrightStart:

“As the owner of a 529 account, your contributions are eligible for the annual gift tax exclusion, which is currently $17,000 per beneficiary. 529 plans also allow for a special gift tax exclusion election.

In general, this rule allows you to contribute up to $85,000 for each beneficiary in a single year without federal gift tax consequences – as long as you make no other gifts to the beneficiary in the same year or for the four following calendar years.

This election needs to be made on a federal gift tax return. Under this rule, a portion of your contributions are subject to being added back into your taxable estate in the event of your death within the five-year period. A tax advisor should be consulted when considering larger gifts.”

[PCD21]

Thank you.