Ace the Certified Trust and Fiduciary Advisor Exam 2025 – Unlock Your CTFA Success!

Question: 1 / 400

What happens to a gift made to a 529 plan regarding tax reportability?

It is fully taxable

It qualifies for tax exclusion

A gift made to a 529 plan is treated as a tax-exempt contribution, which qualifies for tax exclusion. Contributions made to a 529 plan are not subject to federal income tax, and they can grow tax-deferred in the account. Additionally, the recipient of the funds does not incur any income tax on these contributions, making this an effective way to save for education expenses.

Furthermore, there are certain annual contribution limits, but amounts below this threshold generally do not trigger gift taxes. Additionally, contributions to a 529 plan may also qualify for a special election which allows contributors to spread the gift tax consequences over five years, allowing for larger contributions without immediate tax implications. This highlights the significance of using 529 plans as a strategic method for funding education while optimizing tax benefits.

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It must be reported as income

It is subject to a gift tax

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